{"id":"F2012L02380","name":"Insurance (prudential standard) determination No. 5 of 2012 - Prudential Standard GPS 115 - Capital Adequacy: Insurance Risk Charge","slug":"insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"repealed","isInForce":false,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":90369,"registerId":"commonwealth-F2012L02380-current","compilationNumber":null,"startDate":"2026-04-02","status":"Repealed","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"Prudential Standard GPS 115","sectionType":"section","heading":"Prudential Standard GPS 115","content":"##### ![](image.002.png)\n\n##### Prudential Standard GPS 115\n\n# Capital Adequacy: Insurance Risk Charge\n\n| Objective and key requirements of this Prudential StandardThis Prudential Standard requires a general insurer or Level 2 insurance group to maintain adequate capital against the insurance risks associated with its activities.The ultimate responsibility for the prudent management of capital of a general insurer or Level 2 insurance group rests with its Board of directors. The Board must ensure that the general insurer or Level 2 insurance group maintains an adequate level and quality of capital commensurate with the scale, nature and complexity of its business and risk profile, such that it is able to meet its obligations under a wide range of circumstances.The Insurance Risk Charge is the minimum amount of capital required to be held against insurance risks. The Insurance Risk Charge relates to the risk that the value of the net insurance liabilities is greater than the value determined by the Appointed Actuary or Group Actuary.This Prudential Standard sets out the method for calculating the Insurance Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for general insurers and Level 2 insurance groups. |\n| ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n \nAuthority\n\n1. This Prudential Standard is made under section 32 of the Insurance Act 1973 (the Act).\n\nApplication\n\n2. This Prudential Standard applies to each:\n\n(a) general insurer authorised under the Act (insurer); and\n\n(b) Level 2 insurance group as defined in Prudential Standard GPS 001 Definitions (GPS 001).\n\nWhere a requirement is made in respect of a Level 2 insurance group, the requirement is imposed on the parent entity of the Level 2 insurance group.\n\n3. This Prudential Standard applies to insurers and Level 2 insurance groups (regulated institutions) from 1 January 2013.\n\nInterpretation\n\n4. Terms that are defined in GPS 001 appear in bold the first time they are used in this Prudential Standard.\n\n5. For the purposes of this Prudential Standard the term ‘Actuary’ is a reference to either the Appointed Actuary for an insurer or the Group Actuary for a Level 2 insurance group (as appropriate).\n\nInsurance Risk Charge\n\n6. This Prudential Standard sets out the method for calculating the Insurance Risk Charge for a regulated institution using the Standard Method to determine its prescribed capital amount.\n\n7. The Insurance Risk Charge relates to the risk that the value of net insurance liabilities is greater than the value determined in accordance with Prudential Standard GPS 320 Actuarial and Related Matters (GPS 320). It has two components:\n\n(a) a risk charge in respect of Outstanding Claims Risk; and\n\n(b) a risk charge in respect of Premiums Liability Risk.\n\nThe total Insurance Risk Charge is the sum of the risk charge for each of the two components.\n\nOutstanding Claims Risk\n\n8. The risk charge for Outstanding Claims Risk relates to the risk that the value of the net outstanding claims liabilities will be greater than the value determined in accordance with GPS 320.\n\n9. For the purposes of the Standard Method, the risk charge for each class of business is calculated by multiplying the net outstanding claims liabilities for that class (as determined in accordance with GPS 320) by the relevant Outstanding Claims Risk Capital Factor in Attachment A. The total risk charge for outstanding claims risk is the sum of the risk charges for each class of business.\n\nPremiums Liability Risk\n\n10. The risk charge for Premiums Liability Risk relates to the risk that the value of the net premiums liabilities will be greater than the value determined in accordance with GPS 320. It also relates to the risk that ‘material net written premium’, as defined in paragraph 17, will be insufficient to fund the liabilities arising from that business.\n\n11. For the purposes of the Standard Method, the risk charge for each class of business is calculated by multiplying the sum of:\n\n(a) net premiums liabilities as determined in accordance with GPS 320; and\n\n(b) material net written premiums\n\nby the relevant Premiums Liability Risk Capital Factor in Attachment A. The total risk charge for Premiums Liability Risk is the sum of the risk charges for Premiums Liability Risk for each class of business.\n\nClasses of business\n\n12. For the purposes of the Outstanding Claims Risk Capital Factor and Premiums Liability Risk Capital Factor, all but the ‘other’ direct class of business[\\[1\\]](#_ftn1) and ‘other’ reinsurance class of business have been classified into different categories in Attachment A (Table 1 and Table 2 respectively). The ‘other’ class of business must be allocated to a category by the Actuary, in accordance with paragraphs 13 and 14.\n\n13. For the purpose of calculating the Insurance Risk Charge in respect of any ‘other’ business (whether it is direct business or reinsurance), the Actuary is required to determine the most appropriate category (i.e. category A, B or C) in Table 1 and Table 2 of Attachment A. The choice must be based on the underlying risk characteristics of the business being written. The regulated institution must then apply the corresponding Outstanding Claims Risk Capital Factor and Premiums Liability Risk Capital Factor listed in Attachment A in determining the Insurance Risk Charge.\n\n14. If the ‘other’ class of business includes multiple risks with differing risk profiles, the Actuary may subdivide the net outstanding claims liabilities, net premiums liabilities and material net written premiums into more than one category.\n\n15. The reasons for selecting the specific risk category or categories to which the ‘other’ class of business is assigned must be documented in the Insurance Liability Valuation Report.\n\nBusiness covering multiple classes\n\n16. Where a regulated institution underwrites an inwards reinsurance contract which spans multiple classes, the contract must be allocated by using an appropriate method (provided the same method is used for all contracts and all subsequent periods). Appropriate methods include:\n\n(a) allocating the contract on a pro rata basis to each of the relevant categories; or\n\n(b) allocating the contract to the category which represents the greatest exposure; or\n\n(c) allocating the contract to the category representing the greatest premium income.\n\nThe regulated institution may use an alternative method from those listed above for allocating inwards reinsurance business that spans multiple classes. The regulated institution must be able to demonstrate that the chosen method is appropriate and is used for all contracts and all subsequent periods.\n\nMaterial net written premium\n\n17. With respect to direct business and reinsurance business where policies incept in the following reporting period and where these policies would have a material impact on capital adequacy, net written premium for exposure that has not been included in the calculation of the premiums liabilities is to be subject to the premiums liabilities risk charge.[\\[2\\]](#_ftn2) This premium amount is defined as ‘material net written premium’. The materiality of the business that incepts in the next reporting period should be determined in accordance with the Australian accounting and auditing standards subject to APRA’s discretion.\n\n18. The value of material net written premium calculated in paragraph 17 must also reflect the full premium revenue for inwards proportional reinsurance for the full term of the current reinsurance contract where the treaty extends beyond the end of the current reporting period but the revenue has not yet been recognised.[\\[3\\]](#_ftn3)\n\nSecuritisation\n\n19. If a regulated institution securitises insurance liabilities, the net insurance liabilities may reduce. The regulated institution must apply to APRA for approval to include the securitisation transaction in the Insurance Risk Charge.\n\nAdjustments and exclusions\n\n20. APRA may, by notice in writing to a regulated institution, adjust or exclude a specific requirement in this Prudential Standard in relation to that regulated institution.\n\nTransition\n\n21. On application by a regulated institution, APRA may grant transitional relief from the obligation for the regulated institution to comply with any requirement in this Prudential Standard. Any relief granted by APRA under this paragraph will have effect until no later than 31 December 2014.\n\n# Determinations made under previous prudential standards\n\n22. An exercise of APRA’s discretion under a previous version of this Prudential Standard does not continue to have effect under this Prudential Standard. For the purposes of this paragraph, ‘a previous version of this Prudential Standard’ includes:\n\n(a) Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge (GPS 115) made on 18 June 2010;\n\n(b) GPS 115 made on 23 June 2008;\n\n(c) Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Groups (GPS 111) made on 23 September 2011; and\n\n(d) GPS 111 made on 17 December 2008.\n\nAttachment A\n\nTable 1: Direct insurance business\n\n| Category | Class of business | OutstandingClaims RiskCapital Factor(%) | Premiums Liability Risk Capital Factor(%) |\n| -------- | --------------------------------------------------------------------------------- | --------------------------------------- | ----------------------------------------- |\n| A | HouseholdersCommercial MotorDomestic Motor | 9.0 | 13.5 |\n| B | TravelFire and ISRMarine and AviationConsumer CreditOther Accident | 11.0 | 16.5 |\n| C | MortgageCTPPublic and Product LiabilityProfessional IndemnityEmployers’ Liability | 14.0 | 21.0 |\n\n##### Table 2: Inwards reinsurance business\n\n```html\n

Category

Class of business

Reinsurance type

Outstanding Claims Risk Capital Factor

(%)

Premiums Liability Risk Capital Factor

(%)

A

Householders

Commercial Motor

Domestic Motor

Proportional

10.0

15.0

Non-proportional

12.0

18.0

B

Travel

Fire and ISR

Marine and Aviation

Consumer Credit

Other Accident

Proportional

12.0

18.0

Non-proportional

14.0

21.0

C

Mortgage

CTP

Public and Product Liability

Professional Indemnity

Employers’ Liability

Proportional

15.0

22.5

Non-proportional

17.0

25.5

\n```","sortOrder":0},{"sectionNumber":"Capital Adequacy: Insurance Risk Charge","sectionType":"part","heading":"Capital Adequacy: Insurance Risk Charge","content":"# Capital Adequacy: Insurance Risk Charge\n\n| Objective and key requirements of this Prudential StandardThis Prudential Standard requires a general insurer or Level 2 insurance group to maintain adequate capital against the insurance risks associated with its activities.The ultimate responsibility for the prudent management of capital of a general insurer or Level 2 insurance group rests with its Board of directors. The Board must ensure that the general insurer or Level 2 insurance group maintains an adequate level and quality of capital commensurate with the scale, nature and complexity of its business and risk profile, such that it is able to meet its obligations under a wide range of circumstances.The Insurance Risk Charge is the minimum amount of capital required to be held against insurance risks. The Insurance Risk Charge relates to the risk that the value of the net insurance liabilities is greater than the value determined by the Appointed Actuary or Group Actuary.This Prudential Standard sets out the method for calculating the Insurance Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for general insurers and Level 2 insurance groups. |\n| ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n \nAuthority\n\n1. This Prudential Standard is made under section 32 of the Insurance Act 1973 (the Act).\n\nApplication\n\n2. This Prudential Standard applies to each:\n\n(a) general insurer authorised under the Act (insurer); and\n\n(b) Level 2 insurance group as defined in Prudential Standard GPS 001 Definitions (GPS 001).\n\nWhere a requirement is made in respect of a Level 2 insurance group, the requirement is imposed on the parent entity of the Level 2 insurance group.\n\n3. This Prudential Standard applies to insurers and Level 2 insurance groups (regulated institutions) from 1 January 2013.\n\nInterpretation\n\n4. Terms that are defined in GPS 001 appear in bold the first time they are used in this Prudential Standard.\n\n5. For the purposes of this Prudential Standard the term ‘Actuary’ is a reference to either the Appointed Actuary for an insurer or the Group Actuary for a Level 2 insurance group (as appropriate).\n\nInsurance Risk Charge\n\n6. This Prudential Standard sets out the method for calculating the Insurance Risk Charge for a regulated institution using the Standard Method to determine its prescribed capital amount.\n\n7. The Insurance Risk Charge relates to the risk that the value of net insurance liabilities is greater than the value determined in accordance with Prudential Standard GPS 320 Actuarial and Related Matters (GPS 320). It has two components:\n\n(a) a risk charge in respect of Outstanding Claims Risk; and\n\n(b) a risk charge in respect of Premiums Liability Risk.\n\nThe total Insurance Risk Charge is the sum of the risk charge for each of the two components.\n\nOutstanding Claims Risk\n\n8. The risk charge for Outstanding Claims Risk relates to the risk that the value of the net outstanding claims liabilities will be greater than the value determined in accordance with GPS 320.\n\n9. For the purposes of the Standard Method, the risk charge for each class of business is calculated by multiplying the net outstanding claims liabilities for that class (as determined in accordance with GPS 320) by the relevant Outstanding Claims Risk Capital Factor in Attachment A. The total risk charge for outstanding claims risk is the sum of the risk charges for each class of business.\n\nPremiums Liability Risk\n\n10. The risk charge for Premiums Liability Risk relates to the risk that the value of the net premiums liabilities will be greater than the value determined in accordance with GPS 320. It also relates to the risk that ‘material net written premium’, as defined in paragraph 17, will be insufficient to fund the liabilities arising from that business.\n\n11. For the purposes of the Standard Method, the risk charge for each class of business is calculated by multiplying the sum of:\n\n(a) net premiums liabilities as determined in accordance with GPS 320; and\n\n(b) material net written premiums\n\nby the relevant Premiums Liability Risk Capital Factor in Attachment A. The total risk charge for Premiums Liability Risk is the sum of the risk charges for Premiums Liability Risk for each class of business.\n\nClasses of business\n\n12. For the purposes of the Outstanding Claims Risk Capital Factor and Premiums Liability Risk Capital Factor, all but the ‘other’ direct class of business[\\[1\\]](#_ftn1) and ‘other’ reinsurance class of business have been classified into different categories in Attachment A (Table 1 and Table 2 respectively). The ‘other’ class of business must be allocated to a category by the Actuary, in accordance with paragraphs 13 and 14.\n\n13. For the purpose of calculating the Insurance Risk Charge in respect of any ‘other’ business (whether it is direct business or reinsurance), the Actuary is required to determine the most appropriate category (i.e. category A, B or C) in Table 1 and Table 2 of Attachment A. The choice must be based on the underlying risk characteristics of the business being written. The regulated institution must then apply the corresponding Outstanding Claims Risk Capital Factor and Premiums Liability Risk Capital Factor listed in Attachment A in determining the Insurance Risk Charge.\n\n14. If the ‘other’ class of business includes multiple risks with differing risk profiles, the Actuary may subdivide the net outstanding claims liabilities, net premiums liabilities and material net written premiums into more than one category.\n\n15. The reasons for selecting the specific risk category or categories to which the ‘other’ class of business is assigned must be documented in the Insurance Liability Valuation Report.\n\nBusiness covering multiple classes\n\n16. Where a regulated institution underwrites an inwards reinsurance contract which spans multiple classes, the contract must be allocated by using an appropriate method (provided the same method is used for all contracts and all subsequent periods). Appropriate methods include:\n\n(a) allocating the contract on a pro rata basis to each of the relevant categories; or\n\n(b) allocating the contract to the category which represents the greatest exposure; or\n\n(c) allocating the contract to the category representing the greatest premium income.\n\nThe regulated institution may use an alternative method from those listed above for allocating inwards reinsurance business that spans multiple classes. The regulated institution must be able to demonstrate that the chosen method is appropriate and is used for all contracts and all subsequent periods.\n\nMaterial net written premium\n\n17. With respect to direct business and reinsurance business where policies incept in the following reporting period and where these policies would have a material impact on capital adequacy, net written premium for exposure that has not been included in the calculation of the premiums liabilities is to be subject to the premiums liabilities risk charge.[\\[2\\]](#_ftn2) This premium amount is defined as ‘material net written premium’. The materiality of the business that incepts in the next reporting period should be determined in accordance with the Australian accounting and auditing standards subject to APRA’s discretion.\n\n18. The value of material net written premium calculated in paragraph 17 must also reflect the full premium revenue for inwards proportional reinsurance for the full term of the current reinsurance contract where the treaty extends beyond the end of the current reporting period but the revenue has not yet been recognised.[\\[3\\]](#_ftn3)\n\nSecuritisation\n\n19. If a regulated institution securitises insurance liabilities, the net insurance liabilities may reduce. The regulated institution must apply to APRA for approval to include the securitisation transaction in the Insurance Risk Charge.\n\nAdjustments and exclusions\n\n20. APRA may, by notice in writing to a regulated institution, adjust or exclude a specific requirement in this Prudential Standard in relation to that regulated institution.\n\nTransition\n\n21. On application by a regulated institution, APRA may grant transitional relief from the obligation for the regulated institution to comply with any requirement in this Prudential Standard. Any relief granted by APRA under this paragraph will have effect until no later than 31 December 2014.\n\n# Determinations made under previous prudential standards\n\n22. An exercise of APRA’s discretion under a previous version of this Prudential Standard does not continue to have effect under this Prudential Standard. For the purposes of this paragraph, ‘a previous version of this Prudential Standard’ includes:\n\n(a) Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge (GPS 115) made on 18 June 2010;\n\n(b) GPS 115 made on 23 June 2008;\n\n(c) Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Groups (GPS 111) made on 23 September 2011; and\n\n(d) GPS 111 made on 17 December 2008.\n\nAttachment A\n\nTable 1: Direct insurance business\n\n| Category | Class of business | OutstandingClaims RiskCapital Factor(%) | Premiums Liability Risk Capital Factor(%) |\n| -------- | --------------------------------------------------------------------------------- | --------------------------------------- | ----------------------------------------- |\n| A | HouseholdersCommercial MotorDomestic Motor | 9.0 | 13.5 |\n| B | TravelFire and ISRMarine and AviationConsumer CreditOther Accident | 11.0 | 16.5 |\n| C | MortgageCTPPublic and Product LiabilityProfessional IndemnityEmployers’ Liability | 14.0 | 21.0 |\n\n##### Table 2: Inwards reinsurance business\n\n```html\n

Category

Class of business

Reinsurance type

Outstanding Claims Risk Capital Factor

(%)

Premiums Liability Risk Capital Factor

(%)

A

Householders

Commercial Motor

Domestic Motor

Proportional

10.0

15.0

Non-proportional

12.0

18.0

B

Travel

Fire and ISR

Marine and Aviation

Consumer Credit

Other Accident

Proportional

12.0

18.0

Non-proportional

14.0

21.0

C

Mortgage

CTP

Public and Product Liability

Professional Indemnity

Employers’ Liability

Proportional

15.0

22.5

Non-proportional

17.0

25.5

\n```","sortOrder":1},{"sectionNumber":"Objective and key requirements of this P","sectionType":"division","heading":"Objective and key requirements of this Prudential Standard","content":"### Objective and key requirements of this Prudential Standard\n\nThis Prudential Standard requires a general insurer or Level 2 insurance group to maintain adequate capital against the insurance risks associated with its activities.\n\nThe ultimate responsibility for the prudent management of capital of a general insurer or Level 2 insurance group rests with its Board of directors. The Board must ensure that the general insurer or Level 2 insurance group maintains an adequate level and quality of capital commensurate with the scale, nature and complexity of its business and risk profile, such that it is able to meet its obligations under a wide range of circumstances.\n\nThe Insurance Risk Charge is the minimum amount of capital required to be held against insurance risks. The Insurance Risk Charge relates to the risk that the value of the net insurance liabilities is greater than the value determined by the Appointed Actuary or Group Actuary.\n\nThis Prudential Standard sets out the method for calculating the Insurance Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for general insurers and Level 2 insurance groups.","sortOrder":2},{"sectionNumber":"Determinations made under previous prude","sectionType":"part","heading":"Determinations made under previous prudential standards","content":"# Determinations made under previous prudential standards\n\n22. An exercise of APRA’s discretion under a previous version of this Prudential Standard does not continue to have effect under this Prudential Standard. For the purposes of this paragraph, ‘a previous version of this Prudential Standard’ includes:\n\n(a) Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge (GPS 115) made on 18 June 2010;\n\n(b) GPS 115 made on 23 June 2008;\n\n(c) Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Groups (GPS 111) made on 23 September 2011; and\n\n(d) GPS 111 made on 17 December 2008.\n\nAttachment A\n\nTable 1: Direct insurance business\n\n| Category | Class of business | OutstandingClaims RiskCapital Factor(%) | Premiums Liability Risk Capital Factor(%) |\n| -------- | --------------------------------------------------------------------------------- | --------------------------------------- | ----------------------------------------- |\n| A | HouseholdersCommercial MotorDomestic Motor | 9.0 | 13.5 |\n| B | TravelFire and ISRMarine and AviationConsumer CreditOther Accident | 11.0 | 16.5 |\n| C | MortgageCTPPublic and Product LiabilityProfessional IndemnityEmployers’ Liability | 14.0 | 21.0 |\n\n##### Table 2: Inwards reinsurance business\n\n```html\n

Category

Class of business

Reinsurance type

Outstanding Claims Risk Capital Factor

(%)

Premiums Liability Risk Capital Factor

(%)

A

Householders

Commercial Motor

Domestic Motor

Proportional

10.0

15.0

Non-proportional

12.0

18.0

B

Travel

Fire and ISR

Marine and Aviation

Consumer Credit

Other Accident

Proportional

12.0

18.0

Non-proportional

14.0

21.0

C

Mortgage

CTP

Public and Product Liability

Professional Indemnity

Employers’ Liability

Proportional

15.0

22.5

Non-proportional

17.0

25.5

\n```","sortOrder":3},{"sectionNumber":"Category","sectionType":"part","heading":"Category","content":"# Category","sortOrder":4},{"sectionNumber":"Class of business","sectionType":"part","heading":"Class of business","content":"# Class of business","sortOrder":5},{"sectionNumber":"B","sectionType":"section","heading":"B","content":"###### B","sortOrder":6},{"sectionNumber":"Travel","sectionType":"section","heading":"Travel","content":"###### Travel\n\n###### Fire and ISR\n\nMarine and Aviation\n\nConsumer Credit\n\n###### Other Accident","sortOrder":7},{"sectionNumber":"Fire and ISR","sectionType":"section","heading":"Fire and ISR","content":"###### Fire and ISR\n\nMarine and Aviation\n\nConsumer Credit","sortOrder":8},{"sectionNumber":"Other Accident","sectionType":"section","heading":"Other Accident","content":"###### Travel\n\n###### Fire and ISR\n\nMarine and Aviation\n\nConsumer Credit\n\n###### Other Accident","sortOrder":9},{"sectionNumber":"C","sectionType":"section","heading":"C","content":"###### C","sortOrder":10},{"sectionNumber":"Mortgage","sectionType":"section","heading":"Mortgage","content":"###### Mortgage\n\n###### CTP\n\nPublic and Product Liability\n\nProfessional Indemnity\n\nEmployers’ Liability","sortOrder":11},{"sectionNumber":"CTP","sectionType":"section","heading":"CTP","content":"###### CTP\n\nPublic and Product Liability\n\nProfessional Indemnity\n\nEmployers’ Liability","sortOrder":12},{"sectionNumber":"Table 2: Inwards reinsurance business","sectionType":"section","heading":"Table 2: Inwards reinsurance business","content":"##### Table 2: Inwards reinsurance business\n\n```html\n

Category

Class of business

Reinsurance type

Outstanding Claims Risk Capital Factor

(%)

Premiums Liability Risk Capital Factor

(%)

A

Householders

Commercial Motor

Domestic Motor

Proportional

10.0

15.0

Non-proportional

12.0

18.0

B

Travel

Fire and ISR

Marine and Aviation

Consumer Credit

Other Accident

Proportional

12.0

18.0

Non-proportional

14.0

21.0

C

Mortgage

CTP

Public and Product Liability

Professional Indemnity

Employers’ Liability

Proportional

15.0

22.5

Non-proportional

17.0

25.5

\n```","sortOrder":13}],"analysis":{"flash_summary":{"complexity_score":5,"scope_assessment":{"changed":true,"description":"This Standard preserves the core scope (capital calibration for insurance liabilities) but alters continuity of prior regulatory discretions: paragraph 22 expressly states previous APRA exercises of discretion do not continue. APRA retains power to adjust, exclude or grant transitional relief (paras 20–21), and securitisation inclusion requires APRA approval (para 19), so regulated institutions cannot assume prior exemptions automatically carry over."},"complexity_factors":["Dependence on actuarial valuations under GPS 320 to determine net outstanding claims and net premiums liabilities (paras 7–11).","Multiple class allocations with actuator discretion for ‘other’ classes and subdivision where risk profiles differ (paras 12–15).","Different capital factors by class and by direct versus inwards reinsurance, and by proportional/non‑proportional reinsurance (Attachment A).","Inclusion of ‘material net written premium’ for upcoming-period policies and rules for its measurement (paras 17–18).","Operational requirements for allocating multi-class inwards reinsurance consistently across periods, with permitted methods and the need to demonstrate appropriateness (para 16).","Regulatory discretion: APRA may adjust or exclude requirements, grant transitional relief, and must approve securitisation transactions to be recognised in the charge (paras 19–21).","Documentation and reporting burden: Actuary must record reasons for class choices in the Insurance Liability Valuation Report (para 15).","Interactional complexity across prudential standards (GPS 001 for definitions and GPS 320 for valuations) and non-continuation of prior APRA discretions (para 22)."],"plain_english_summary":"This Prudential Standard prescribes how general insurers and Level 2 insurance groups must calculate an Insurance Risk Charge: a minimum capital amount computed by applying fixed percentage capital factors to actuarially determined net outstanding claims and net premiums liabilities for each class of business. Boards and appointed actuaries must classify business, document choices and hold the resulting capital; insurers bear the cost of extra capital and compliance, APRA may approve securitisations or vary requirements, and the rules create incentives to manage liability size and use reinsurance or approved transfers."},"kimi_summary":{"_metrics":{"model":"kimi-k2.5","source":"moonshot-realtime","completionTokens":4893},"content_quality":"ok","complexity_score":6,"scope_assessment":{"changed":false,"description":"The standard remains precisely focused on its original purpose of prescribing the calculation methodology for the Insurance Risk Charge component of capital adequacy. It does not expand beyond this specific technical regulatory function."},"complexity_factors":["Numerous cross-references to external prudential standards (GPS 001, GPS 320)","Mathematical calculation methodology with multiple variables and conditional logic","18 distinct capital factors across direct and reinsurance business categories","Requirement for actuarial judgment in categorizing 'other' business classes","Distinction between proportional and non-proportional reinsurance with different risk factors","Nested definitions requiring reference to Australian accounting standards for materiality thresholds"],"plain_english_summary":"This Prudential Standard requires general insurers and Level 2 insurance groups to hold extra capital — an \"Insurance Risk Charge\" — to cover unexpected losses from outstanding claims and future policy liabilities. The charge is calculated by applying risk-based percentage factors to liabilities (with higher factors for riskier classes and for reinsurance), and is part of the prescribed capital amount. The board must ensure adequacy, the actuary must classify unusual business and justify choices, and APRA can adjust or grant relief."}},"importantCases":[],"_links":{"self":"/api/acts/insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac","history":"/api/acts/insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac/history","analysis":"/api/acts/insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac/analysis","conflicts":"/api/acts/insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac/conflicts","importantCases":"/api/acts/insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac/important-cases","documents":"/api/acts/insurance-prudential-standard-determination-no-5-of-2012-prudential-standard-gps-115-capital-adequac/documents"}}