Insurance (prudential standard) determination No. 4 of 2010 - Prudential Standard GPS 110 - Capital Adequacy
Insurance riskInsurance risk
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Insurance risk
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The Insurance Risk Capital Charge relates to the risk that the actual value of net insurance liabilities is greater than the value determined in accordance with GPS 310. The method for determining the Insurance Risk Capital Charge is set out in Prudential Standard GPS 115 Insurance Risk Capital Charge.
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This capital charge has two components:
(a) a charge in respect of outstanding claims risk (Outstanding Claims Capital Charge); and
(b) a charge in respect of premiums liability risk (Premiums Liability Capital Charge).
The Outstanding Claims Capital Charge relates to the risk that the value of the net outstanding claims liabilities is greater than the value determined in accordance with GPS 310. The Premiums Liability Capital Charge relates to the risk that premiums relating to post calculation date exposures, including premiums written before but incepting after the calculation date, are insufficient to fund the liabilities arising from that business.
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The Outstanding Claims Capital Charge is determined as the sum, over all classes of business of the insurer, of the value of the net outstanding claims liabilities for each class (determined in accordance with GPS 310), multiplied by the appropriate Outstanding Claims Capital Factor for that class.
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The Premiums Liability Capital Charge is determined as the sum, over all classes of business of the insurer, of the net premiums liabilities for each class (determined in accordance with GPS 310), multiplied by the appropriate Premiums Liability Capital Factor for that class.
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If an insurer securitises insurance liabilities, the net insurance liabilities may reduce. The insurer must consult APRA prior to entering into the securitisation transaction in order to be able to reduce the Insurance Risk Capital Charge and the Concentration Risk Capital Charge.