Objective and key requirements of this PObjective and key requirements of this Prudential Standard

Objective and key requirements of this Prudential Standard

This Prudential Standard aims to ensure that a Level 2 insurance group maintains an appropriate level of capital in order for APRA-authorised insurers within the group to remain financially sound and to ensure that policyholder interests are protected.

This Prudential Standard is to be read in conjunction with other capital standards applicable to Level 1 insurers. A Level 2 insurance group’s capital adequacy assessment is essentially based on the same prudential requirements that apply to Level 1 insurers. Any additional or alternative prudential requirements for Level 2 insurance groups are specified in this Prudential Standard.

The key requirements of this Prudential Standard are that a Level 2 insurance group must:

• maintain minimum levels of capital determined according to the Internal Model-based Method or the Prescribed Method;
• determine its Minimum Capital Requirement having regard to a range of risk factors that may threaten the ability of any Level 1 insurer within the Level 2 insurance group to meet policyholder obligations. Under the Prescribed Method, these are insurance risk, investment risk and concentration risk. A Level 2 insurance group using the Internal Model-based Method is expected to include at least these risks, but also all other relevant risk factors across the entire Level 2 insurance group, within its method of calculation;
• make certain public disclosures about its capital adequacy position; and
• seek APRA’s approval for reductions in capital.