{"id":"F2023L00671","name":"Insurance (prudential standard) determination No. 7 of 2023","slug":"insurance-prudential-standard-determination-no-7-of-2023","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":441880,"registerId":"F2023L00671-fast-fetch-1775957056187","compilationNumber":null,"startDate":"2026-04-12","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"1","sectionType":"section","heading":"Insurance (prudential standard) determination No. 7 of 2023","content":"---\nmeta-content-style-type: text/css\nmeta-content-type: application/xhtml+xml; charset=utf-8\nmeta-generator: Aspose.Words for .NET 22.10.0\nmeta-keywords: \"[SEC=UNOFFICIAL]\"\ntitle: Prudential Standard GPS 117\n---\n\n\n\nInsurance (prudential standard) determination\n\nNo. 7 of 2023\n\nPrudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge\n\nInsurance Act 1973\n\nI, Helen Rowell, a delegate of APRA:\n\n(a) under subsection 32(4) of the Insurance Act 1973 (the Act), revoke Insurance (prudential standard) determination No. 4 of 2022, including Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge, made under that Determination; and\n\n \n\n(b) under subsection 32(1) of the Act determine Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge, in the form set out in the Schedule, which applies to:\n\n \n\n(i) all general insurers and authorised NOHCs; and\n\n \n\n(ii) a subsidiary of a general insurer or authorised NOHC, where that subsidiary is a parent entity of a Level 2 insurance group.\n\nThis instrument commences on 1 July 2023.\n\nDated: 24 May 2023\n\n \n\n[Signed]\n\n \n\nHelen Rowell\n\nDeputy Chair\n\nInterpretation\n\nIn this instrument:\n\n \n\nAPRA means the Australian Prudential Regulation Authority.\n\n \n\nauthorised NOHC has the meaning given in section 3 of the Act.\n\n \n\ngeneral insurer has the meaning given in section 11 of the Act.\n\n \n\nLevel 2 insurance group has the meaning given in Prudential Standard GPS 001 Definitions.\n\n \n\nparent entity has the meaning given in Prudential Standard GPS 001 Definitions.\n\n \n\nsubsidiary has the meaning given in Prudential Standard GPS 001 Definitions.\n\n \n\nSchedule\n\n \n\nPrudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge, comprises the document commencing on the following page.\n\n \n\n \n\n\n\nPrudential Standard GPS 117 \n\nCapital Adequacy: Asset Concentration Risk Charge \n\n| Objectives and key requirements of this Prudential Standard
This Prudential Standard requires a general insurer or Level 2 insurance group to maintain adequate capital against the risks associated with asset concentration in 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 operations under a wide range of circumstances.
The Asset Concentration Risk Charge is the minimum amount of capital required to be held against asset concentration risks. The Asset Concentration Risk Charge relates to the risk of concentration in exposures to a particular asset, counterparty or group of related counterparties resulting in adverse movements in the general insurer’s or Level 2 insurance group’s capital base.
This Prudential Standard sets out the method for calculating the Asset Concentration 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\n \n\n \n\nTable of Contents\n\n[Authority](#_Toc109645254)\n\n[Application and commencement](#_Toc109645255)\n\n[Interpretation](#_Toc109645256)\n\n[Definitions](#_Toc109645257)\n\n[Asset Concentration Risk Charge principles](#_Toc109645258)\n\n[Asset Concentration Risk Charge calculation](#_Toc109645259)\n\n[Treatment of collateral and guarantees as risk mitigants](#_Toc109645260)\n\n[Reinsurance recoverables due from non-APRA authorised reinsurers](#_Toc109645263)\n\n[Adjustments and exclusions](#_Toc109645266)\n\n[Previous exercise of discretion](#_Toc109645267)\n\n[Attachment A – Asset exposure limits](#_Toc109645268)\n\n# Authority\n\n1. This Prudential Standard is made under section 32 of the Insurance Act 1973 (the Act).\n\n\n# Application and commencement\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\n \n\n3. This Prudential Standard applies to insurers and Level 2 insurance groups (regulated institutions) from 1 July 2023.\n\n \n\n# Interpretation\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:\n\n(a) ‘Eligible Collateral Items’ are cash, government securities or debt obligations (i.e. loans, deposits, placements, interest rate securities and other receivables) where the counterparty has a counterparty grade of 1, 2 or 3 as defined in Attachment C of GPS 001;\n\n(b) ‘non-reinsurance exposures’ are the on- and off-balance sheet exposures of an insurer or Level 2 insurance group other than exposures to a reinsurer;\n\n(c) ‘reinsurance exposures’ are the on- and off- balance sheet exposures of an insurer or Level 2 insurance group to reinsurance assets; and\n\n(d) ‘residual maturity’ is the remaining time until the expiration or the repayment of a financial instrument.\n\n6. Where this Prudential Standard provides for APRA to exercise a power or discretion, this power or discretion is to be exercised in writing.\n\n# Definitions\n\n7. Two or more counterparties will form a ‘group of related counterparties’ if they are linked by:\n\n(a) cross guarantees;\n\n(b) common ownership or management;\n\n(c) the ability of a counterparty to exercise control (defined in accordance with the Australian Accounting Standards) over the other(s), whether direct or indirect;\n\n(d) financial interdependency such that the financial soundness of any of them may affect the financial soundness of the other(s); or\n\n(e) other connections or relationships that exist between counterparties, that in the regulated institution’s assessment, constitute exposure to the counterparties as a single risk.\n\n8. In respect of any overseas entities within a Level 2 insurance group carrying on international business, identification of asset or counterparty exposures is to be carried out on a best endeavours basis using information held by entities within the Level 2 insurance group, or otherwise publicly available information, in a manner consistent with the group’s documented risk management policies.\n\n9. For the purposes of the limits in respect of non-reinsurance exposures in Attachment A, exposures are classified depending on whether or not the counterparty is APRA-regulated or part of an APRA-regulated group. A counterparty meets this requirement if the specific counterparty or its ultimate parent is:\n\n(a) authorised by APRA under the Act as a general insurer or authorised NOHC; or\n\n(b) authorised by APRA under the Banking Act 1959 as an authorised deposit-taking institution (ADI) or authorised NOHC of an ADI; or\n\n(c) registered by APRA under the Life Insurance Act 1995 as a life company or authorised NOHC of a life company.\n\n10. For the purposes of the limits in Table 2(c) of Attachment A, exposures are classified as either short-term or long-term. ‘Short-term’ means a residual maturity of less than or equal to one year. ‘Long-term’ means perpetual or a residual maturity of greater than one year.\n\n# Asset Concentration Risk Charge principles\n\n11. This Prudential Standard sets out the method for calculating the Asset Concentration Risk Charge for a regulated institution using the Standard Method to determine its prescribed capital amount.\n\n12. The Asset Concentration Risk Charge relates to the risk of a regulated institution’s concentrations in exposures to a particular asset, counterparty or group of related counterparties resulting in adverse movements in the regulated institution’s capital base.\n\n13. For the purposes of the Asset Concentration Risk Charge, exposures include all on- and off-balance sheet exposures of the regulated institution. On-balance sheet exposures of the institution should be net of any regulatory adjustments expressly related to the item that are required under Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital.\n\n14. All exposures should be converted to Australian dollars (AUD) as at the reporting date.\n\n15. The portion of any exposure which is subject to the Asset Concentration Risk Charge must not be subject to the Asset Risk Charge as defined in Prudential Standard GPS 114 Capital Adequacy: Asset Risk Charge. The portion of any exposure which is not subject to the Asset Concentration Risk Charge must be subject to the Asset Risk Charge.\n\n16. If a look-through basis has been used for assets under GPS 114, the same look-through basis must be used for the purposes of this Prudential Standard.\n\n17. For Category C insurers, the Asset Concentration Risk Charge must be applied to the assets in Australia only of the Category C insurer, consistent with reporting standards made under the Financial Sector (Collection of Data) Act 2001.\n\n# Asset Concentration Risk Charge calculation\n\n18. The Asset Concentration Risk Charge for each exposure of a regulated institution to a particular asset, counterparty or group of related counterparties is the amount by which this exposure exceeds the limits set out in Attachment A. Separate treatment applies for reinsurance exposures and non-reinsurance exposures. A differing treatment also applies for collateral, guarantees and reinsurance recoverables due from non-APRA-authorised reinsurers as set out in paragraphs 22 to 34.\n\n19. For non-reinsurance exposures to unrelated parties that are part of an APRA-regulated group (Table 2(c) of Attachment A), the Asset Concentration Risk Charge is calculated as the maximum amount after applying each of the sub-limits to the relevant exposures.\n\n20. In the case of reinsurance exposures (both on-balance and off-balance sheet) to a group of related counterparties, exposures need to be compared and aggregated against each of the limits in Table 1 of Attachment A. This means that:\n\n(a) reinsurance exposures within the group that have a counterparty grade of 5 or below are compared to the limit (Table 1(c)) and an amount is determined;\n\n(b) reinsurance exposures of grade 5 and below that are not part of the calculation in sub-paragraph (a) are then added with those with a counterparty grade of 4 and compared to the limit (Table 1(b)), and a further amount is determined; and\n\n(c) reinsurance exposures of grade 4 and below that are not part of the calculation in sub-paragraphs (a) or (b) are then added to those with a counterparty grade above 4 and compared to the limit (Table 1(a)).\n\nThe total Asset Concentration Risk Charge for the reinsurance exposure is the sum of the amounts from each sub-paragraph above.\n\n21. The total Asset Concentration Risk Charge is the sum of each resulting risk charge for each exposure of the regulated institution.\n\n# Treatment of collateral and guarantees as risk mitigants\n\n22. A regulated institution that holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of reducing risk may apply a different approach to determining the Asset Concentration Risk Charge for that asset. Where the assets in question are reinsurance recoverables due from non-APRA-authorised reinsurers, different rules regarding treatment of collateral and guarantees apply (refer to paragraphs 28 to 34).\n\n### Collateral\n\n23. Subject to paragraph 24, where a regulated institution possesses eligible collateral against an asset (other than reinsurance recoverables due from non-APRA-authorised reinsurers), it may treat the underlying asset as an exposure to the Eligible Collateral Item. This means that the asset is included in the limits in Attachment A with respect to the collateral, rather than the underlying counterparty.\n\n24. For the purposes of paragraph 23, collateral is recognised only to the extent that it takes the form of a registered charge, registered mortgage or other legally enforceable security interest in, or over, an Eligible Collateral Item. Eligible Collateral Items are cash, government securities, or debt obligations (i.e. loans, deposits, placements, interest rate securities and other receivables) where the counterparty has a counterparty grade of 1, 2 or 3. The Eligible Collateral Item must be held for a period not less than that for which the asset is held. \n\n25. Where the fair value of the collateral does not cover the full value of the asset, the collateral counterparty rating can only replace that part of the asset that is covered by the collateral. The remaining portion of the asset must be treated as an exposure to the underlying counterparty.\n\n### Guarantees\n\n26. Subject to paragraph 27, where a regulated institution possesses an asset (other than reinsurance recoverables due from non-APRA-authorised reinsurers) that has been explicitly, unconditionally and irrevocably guaranteed for its remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of grade 1, 2 or 3, it may treat the underlying asset as an exposure to the counterparty providing the guarantee. This means that the asset is included in the limits in Attachment A with respect to the guarantee, rather than the underlying counterparty.\n\n27. Guarantees provided to a regulated institution by its own parent or a related entity are not eligible for the treatment provided for in paragraph 26.\n\n# Reinsurance recoverables due from non-APRA authorised reinsurers\n\n### Collateral\n\n28. Subject to paragraphs 29, 30 and 33, where a regulated institution possesses eligible collateral in Australia against reinsurance recoverables due from a non-APRA-authorised reinsurer, it may elect to treat the reinsurance recoverable as an exposure to the eligible collateral. This means that the asset is included in the limits in Attachment A with respect to the collateral, rather than the underlying reinsurer.\n\n29. For the purposes of paragraph 28, eligible collateral is recognised only:\n\n(a) to the extent that it takes the form of:\n\n(i) assets held in Australia which form part of a trust fund maintained by a trustee resident in Australia;\n\n(ii) deposits held by the regulated institution in Australia made by the non-APRA-authorised reinsurer;\n\n(iii) a combination of the two forms of collateral specified in sub-paragraphs (i) and (ii); or\n\n(iv) any other form of collateral as may be approved by APRA in a particular case;\n\n(b) if it provides effective security against liabilities arising under the reinsurance contract; and\n\n(c) if it is not available for distribution to creditors of the reinsurer other than the institution in the event of insolvency of the reinsurer.\n\n30. Where the fair value of the collateral does not cover the full value of the reinsurance recoverables, only the part of the value of the reinsurance recoverables that is covered by collateral may be assigned the counterparty grade of the collateral. The remaining portion of the reinsurance recoverable must be treated as an exposure to the underlying reinsurer.\n\n### Guarantees\n\n31. Subject to paragraph 33, where a regulated institution possesses a guarantee or letter of credit in respect of the reinsurance recoverables due from a non-APRA-authorised reinsurer, it may elect to treat the reinsurance recoverables as an exposure to the guarantor or the issuer of the letter of credit (as applicable). This means that the asset is included in the limits in Attachment A with respect to the guarantor or issuer of the letter of credit, rather than the underlying reinsurer. This paragraph applies only if:\n\n(a) the guarantor or issuer of the letter of credit is an ADI or, in the case of a Category E insurer, its parent entity or other related entity provided the entity has a counterparty rating of grade 1, 2 or 3;\n\n(b) the guarantee or letter of credit is explicit, unconditional and irrevocable;\n\n(c) the guarantor or issuer of the letter of credit is obliged to pay the institution in Australia; and\n\n(d) the obligation of the guarantor or issuer of the letter of credit to pay the institution is specifically linked to performance of the reinsurance contract or contracts under which the reinsurance recoverables arise. \n\n32. Except in the case of a Category E insurer, a guarantee or letter of credit provided to a regulated institution by its parent entity or other related entity is not eligible for the treatment provided for in paragraph 31.\n\n33. The collateral, guarantee or letter of credit referred to in paragraphs 28 and 31 must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the collateral, guarantee or letter of credit must be effective for a period of at least 24 months but be renegotiable each year to allow at least 12 months to identify alternative arrangements if the collateral, guarantee or letter of credit cannot be renegotiated.\n\n34. A regulated institution may elect to not apply the treatment for reinsurance recoverables from non-APRA-authorised reinsurers in paragraphs 28 and 31 and instead apply the counterparty grade of the non-APRA-authorised reinsurer in order to determine the Asset Concentration Risk Charge. APRA may require a institution to apply a specified treatment to reinsurance recoverables from non-APRA-authorised reinsurers supported by collateral, guarantee or letter of credit, rather than the treatment that would otherwise apply under this paragraph.\n\n# Adjustments and exclusions\n\n35. A regulated institution may apply to APRA to vary the application of the limits in Attachment A. In deciding whether to grant the application, APRA will have regard to the type of exposure, the term of the exposure, the ability for the institution to mitigate the Asset Concentration Risk Charge by other means and any other matters which APRA considers relevant. APRA may grant approval for such variation subject to conditions and may specify any period of time for such variation.\n\n36. APRA may adjust or exclude a specific requirement in this Prudential Standard in relation to a regulated institution.\n\n# Previous exercise of discretion\n\n37. A regulated institution must contact APRA if it seeks to place reliance, for the purposes of complying with this Prudential Standard, on a previous exemption or other exercise of discretion made by APRA under a previous version of this Prudential Standard.\n\n## Attachment A – Asset exposure limits\n\n1. This attachment sets out the Asset Concentration Risk Charge limits for exposures to single assets, counterparties and groups of related counterparties.\n\n\nTable 1: Reinsurance exposures\n\n| | Exposure – reinsurance counterparty or group of counterparties | AUD limit |\n| --- | --- | --- |\n| (a) | Exposures to reinsurers with a counterparty grade of 1, 2 or 3 | No limit |\n| (b) | Exposures to reinsurers with a counterparty grade of 4 | 50% of capital base |\n| (c) | Exposures to reinsurers with a counterparty grade of 5, 6 or 7 | 25% of capital base |\n\n\nTable 2: Non-reinsurance exposures\n\n| | Exposure – asset, counterparty or group of counterparties | AUD limit |\n| --- | --- | --- |\n| (a) | Governments with a counterparty grade 1 or 2[[1]](#_ftn1) | No limit |\n| (b) | Related parties that are APRA-regulated or part of an APRA-regulated group[[2]](#_ftn2) | Greater of $22.5 million and 100% of capital base |\n| (c) | Unrelated parties that are APRA-regulated or part of an APRA-regulated group[[3]](#_ftn3):
(i) Short-term exposures[[4]](#_ftn4)
(ii) Long-term exposures[[5]](#_ftn5)
(iii) Total exposure |
Greater of $22.5 million and 100% of capital base
Greater of $11.2 million and 50% of capital base
Greater of $22.5 million and 100% of capital base |\n| (d) | All other exposures | 25% of capital base |\n\n\n \n\n---\n\n\n[[1]](#_ftnref1) This includes assets with a counterparty grade 1 or 2 that are guaranteed by the Commonwealth Government, Australian state and territory governments and foreign governments.\n\n[[2]](#_ftnref2) As defined in paragraph 9 of this Prudential Standard.\n\n[[3]](#_ftnref3) As defined in paragraph 9 of this Prudential Standard.\n\n[[4]](#_ftnref4) As defined in paragraph 10 of this Prudential Standard.\n\n[[5]](#_ftnref5) As defined in paragraph 10 of this Prudential Standard.\n","sortOrder":0}],"analysis":{"kimi_summary":{"content_quality":"ok","complexity_score":7,"scope_assessment":{"changed":false,"description":"This is a straightforward remake/revocation of a previous determination (No. 4 of 2022) updating the prudential standard. The scope remains tightly focused on asset concentration risk capital requirements for general insurers, consistent with the original intent of the Insurance Act 1973 prudential framework. No significant scope creep is evident."},"complexity_factors":["Multiple cross-references to other prudential standards (GPS 001, GPS 112, GPS 114) for definitions and related calculations","Nested conditional logic for calculating reinsurance exposures requiring tiered aggregation (paragraph 20: grade 5+ first, then grade 4+, then remainder)","Dual-track treatment systems: separate rules for reinsurance vs non-reinsurance exposures, and separate rules for APRA-authorised vs non-APRA-authorised reinsurers","Complex collateral and guarantee recognition rules with multiple eligibility conditions (paragraphs 23-27, 28-34)","Defined terms requiring external lookup (counterparty grades defined in GPS 001 Attachment C, not in this instrument)","Mathematical calculations involving 'greater of' thresholds and percentage of capital base limits","Look-through requirements requiring consistency with GPS 114","Geographic restrictions (Category C insurers: Australia-only assets; non-APRA reinsurer collateral: must be held in Australia)","Discretionary powers allowing APRA to vary limits or adjust requirements (paragraphs 35-36)"],"plain_english_summary":"This APRA prudential standard imposes an Asset Concentration Risk Charge on general insurers, Level 2 insurance groups and relevant subsidiaries, requiring extra capital where too much exposure is tied to one asset, counterparty or related group. It matters because it forces buffers against big losses from concentrated exposures; exposures above prescribed limits trigger additional capital, though eligible collateral or guarantees can reduce the charge."},"flash_summary":{"complexity_score":7,"scope_assessment":{"changed":true,"description":"This instrument expressly revokes Insurance (prudential standard) determination No. 4 of 2022 and re‑determines Prudential Standard GPS 117 in the Schedule (preamble). It applies to general insurers, authorised NOHCs and the parent entity of Level 2 insurance groups (paras 2–3). The text replaces the prior Determination but does not include a side‑by‑side comparison, so whether the substantive scope (which entities or exposures are covered) was expanded or narrowed relative to the revoked Determination cannot be determined from this document alone."},"complexity_factors":["Multiple exposure categories: distinct treatments for reinsurance vs non-reinsurance exposures (paras 18–21; Attachment A Tables 1–2).","Counterparty grading system and cross-references to GPS 001 and Attachment C for grades (paras 5(a), 20; Attachment A).","Stepwise aggregation rules for reinsurance exposures (para 20) that require sequential comparisons against sub-limits.","Diverse numeric limits including absolute dollar floors and percentages of capital base across tables and sub‑categories (Attachment A Table 2).","Detailed collateral and guarantee eligibility and conditions, including form, jurisdiction, enforceability, coverage period and partial coverage rules (paras 22–34).","Special and narrower rules for reinsurance recoverables from non-APRA-authorised reinsurers, trust/deposit requirements and renegotiation timing (paras 28–33).","Interplay and mutual exclusivity with other prudential charges and standards (must not double-count with GPS 114 Asset Risk Charge; GPS 112 adjustments; use same look-through basis as GPS 114) (paras 15–16, 13).","Reporting and jurisdictional distinctions (Category C insurers, onshore assets only) and currency conversion requirement (paras 17, 14).","APRA discretion and processes: written exercises of power, ability to approve variations subject to conditions, and prior exemptions handling (paras 6, 35–37).","Dependency on external ratings/definitions and data availability for international group exposures (paras 8–10)."],"plain_english_summary":"This Prudential Standard requires general insurers, authorised non-operating holding companies (NOHCs) and Level 2 insurance groups to hold extra capital against concentrations in exposures to particular assets, counterparties or related counterparty groups. It prescribes a formulaic Asset Concentration Risk Charge, numeric exposure limits (different for reinsurance and non‑reinsurance), rules for treating collateral and guarantees (with special provisions for non‑APRA‑authorised reinsurers), and gives APRA powers to vary or exclude requirements. Boards remain responsible for ensuring their entity holds adequate capital."},"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"}},"importantCases":[],"_links":{"self":"/api/acts/insurance-prudential-standard-determination-no-7-of-2023","history":"/api/acts/insurance-prudential-standard-determination-no-7-of-2023/history","analysis":"/api/acts/insurance-prudential-standard-determination-no-7-of-2023/analysis","conflicts":"/api/acts/insurance-prudential-standard-determination-no-7-of-2023/conflicts","importantCases":"/api/acts/insurance-prudential-standard-determination-no-7-of-2023/important-cases","documents":"/api/acts/insurance-prudential-standard-determination-no-7-of-2023/documents"}}