Document ID: chunk:federal_register_of_legislation:F2023L00682:body:0:p6
Version: federal_register_of_legislation:F2023L00682
Segment Type: other
Provision Reference: 
Character Range: 14168–17265

for its activities, APRA imposes some restrictions on the composition of the capital base. The forms of capital deemed eligible for inclusion in the capital base, and the conditions as to their inclusion, are specified in Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital (GPS 112). GPS 112 defines the different categories and components of the capital base, and the restrictions on the quality of the capital that is used to meet the required level of capital for regulatory purposes.
19.         A regulated institution's balance sheet may contain certain assets (such as deferred tax assets, goodwill and other intangibles) that are acceptable from an accounting perspective. However, for supervisory purposes, such assets are either generally not available, or of questionable value, should the regulated institution encounter difficulties. A regulated institution is therefore required to make certain adjustments in determining the capital base. Details of these adjustments are specified in GPS 112.

Prudential Capital Requirement
20.         This Prudential Standard establishes a risk-based approach for measuring the capital adequacy of a regulated institution. The required level of capital for regulatory purposes is referred to as the Prudential Capital Requirement (PCR). The PCR is intended to take account of the full range of risks to which a regulated institution is exposed.
21.         A regulated institution must ensure that it has a capital base, at all times, in excess of its PCR.[3]
22.         The PCR for a regulated institution equals:
       (a)          a prescribed capital amount determined by applying the 'Standard Method' set out in this Prudential Standard; plus

       (b)          any supervisory adjustment determined by APRA under paragraph 35.

23.         A regulated institution's prescribed capital amount cannot be:
       (a)          in the case of a regulated institution other than a Category D insurer or Category E insurer, less than $5 million; and

       (b)          in the case of a Category D insurer or Category E insurer, less than $2 million.

Standard Method
24.         For regulated institutions using the Standard Method, the prescribed capital amount is determined as:
       (a)          the Insurance Risk Charge; plus
       (b)          the Insurance Concentration Risk Charge; plus
       (c)          the Asset Risk Charge; plus
       (d)          the Asset Concentration Risk Charge; plus
       (e)          the Operational Risk Charge; less
       (f)           an 'aggregation benefit', as defined in paragraph 31.
25.         The prescribed capital amount in respect of a regulated institution determined under the Standard Method is intended to be sufficient, such that if a regulated institution was to start the year with a capital base equal to the prescribed capital amount and losses occurred at the 99.5 per cent confidence level, then the assets remaining would be at least sufficient to provide for the central estimate of the insurance liabilities and other liabilities at the end of