Insurance (prudential standard) determination No. 4 of 2014 - Prudential Standard GPS 113 - Capital Adequacy: Internal Model-based Method
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- The regulated institution’s prescribed capital amount must be an amount of capital sufficient for the regulated institution’s probability of default to be 0.5 per cent or less. Default means the inability to meet claim payments or other liabilities, excluding liabilities that form part of the regulated institution’s capital base, as and when they fall due. In determining the prescribed capital amount, the RCM must allow for:
(a) business written over a one year time horizon;
(b) catastrophe risk losses and operational risk losses occurring over the one year time horizon; and
(c) the run-off of underwriting, reserving, credit and market risks to extinction.
APRA does not require any specific form or structure for the RCM, provided it is satisfied that the result is no less conservative than that specified in this paragraph. It is possible for the RCM to allow for the items listed above without being structured in precisely that form.