2. Charges granted and risk charge

This section of the form requires Level 2 insurance groups to report the risk charge associated with the value of any charges granted over the assets of the group (e.g. to secure funding). This is to be done in accordance with GPS 111.

Note: Paragraph 34 of GPS 111 excludes the 100 per cent capital charge from applying to the international business of a Level 2 insurance group. That is, the requirements of 27 and 28 of GPS 114 only apply to charges granted from entities conducting Australian business (or non-insurers incorporated in Australia) where the counterparty is external to the group. Specific assets that are not subject to a charge or encumbrance will have no effect on the minimum capital requirement.

Type of charge/encumbrance

The following is not an exhaustive list but is provided as an example:

Fixed charge

A fixed charge is generally given in relation to a specific asset or assets and it will generally limit the ability or right of the Level 2 insurance group to deal with those assets.

Floating charge

A floating charge may be given over specific assets or all assets of the insurance company and may generally only crystallise and become a fixed charge on the occurrence of a specific event that is agreed between the parties (i.e. default on payment, or not maintaining specified interest coverage ratios).

Grade of Assets subject to charge

For the purposes of this form use the asset grade scales and the applicable investment capital factors set out in GPS 114.