Document ID: chunk:federal_register_of_legislation:F2023L00673:body:0:p2
Version: federal_register_of_legislation:F2023L00673
Segment Type: other
Provision Reference: 
Character Range: 2777–5722

Standard Method
Supervisory adjustment
Disclosure
Reductions in capital base
Materiality
Notification requirements
Adjustments and exclusions
Previous exercise of discretion
Attachment A - Variable annuities
Attachment B - Combined stress scenario adjustment

Authority
     1. This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).

Application and commencement
2.             This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[1], except where expressly noted otherwise.
3.             A life company must apply this Prudential Standard separately:
(a)          for a life company other than a friendly society: to each of its statutory funds, its shareholders' fund and the life company as a whole; and
(b)          for a friendly society: to each of its approved benefit funds, its management fund and the friendly society as a whole.
4.             This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company (EFLIC) which is carried on through its Australian statutory funds but not otherwise.[2]
5.             This Prudential Standard applies to life companies from 1 July 2023.

Interpretation
6.             Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.
7.             Unless otherwise indicated:
(a)          the term statutory fund will be used to refer to a statutory fund of a life company other than a friendly society, or an approved benefit fund of a friendly society, as relevant;
(b)          the term general fund will be used to refer to the shareholders' fund of a life company other than a friendly society, or the management fund of a friendly society, as relevant; and
(c)          the term 'fund' will be used to refer to a statutory fund or a general fund, as relevant.

Responsibility for capital management
8.             Capital is the cornerstone of a life company's financial strength. It supports a life company's operations by providing a buffer to absorb unanticipated losses from its activities and, in the event of such losses, enables the life company to continue to meet its insurance obligations.
9.             As a consequence of the key role played by capital in the financial strength of a life company, the Board of a life company must ensure that:
(a)          the life company as a whole; and
(b)          each fund
    has capital that is adequate for the scale, nature and complexity of its business and its risk profile, such that it is able to meet its obligations under a wide range of circumstances.

Internal Capital Adequacy Assessment Process
10.         A life company must have in place an Internal Capital Adequacy Assessment Process (ICAAP) that considers each fund of the life company, as well as the life