Insurance (prudential standard) determination No. 3 of 2012 - Prudential Standard GPS 113 - Capital Adequacy: Internal Model-based Method
Objective and key requirements of this PObjective and key requirements of this Prudential Standard
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Objective and key requirements of this Prudential Standard
This Prudential Standard sets out the requirements that a general insurer or Level 2 insurance group must meet to use an Internal Model-based Method for calculating the prescribed capital amount of the general insurer or Level 2 insurance group, both at the time of application and subsequently.
The ultimate responsibility for complying with the requirements to obtain and maintain approval for the use of an Internal Model-based Method rests with the Board of directors of a general insurer or Level 2 insurance group.
The key requirements to obtain and maintain approval for the use of an Internal Model-based Method are that:
- the general insurer or Level 2 insurance group must have an Internal Capital Adequacy Assessment Process that demonstrates an advanced approach to risk management and capital management that includes an appropriate Economic Capital Model;
- governance arrangements for the development and use of the Economic Capital Model are suitable;
- the Economic Capital Model must be used by the general insurer or Level 2 insurance group for its own purposes or for the purposes of the group, and be embedded in management, operations and decision-making processes; and
- the Economic Capital Model must be technically sufficient to produce a reliable estimate of the capital required by the general insurer or Level 2 insurance group.