Insurance (prudential standard) determination No. 6 of 2010 - Prudential Standard GPS 113 - Capital Adequacy: Internal model-based method
Application and review processApplication and review process
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Application and review process
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An insurer wishing to apply for approval to use the IMB Method must consult with APRA at an early stage. To assist APRA in assessing the readiness of an insurer to commence the approval process, APRA has developed a series of self-assessment indicators which are set out in the Attachment.
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APRA will consider an insurer’s self-assessment without seeking evidence or verification (which occurs later in the application and assessment process). If the self-assessment reveals major deficiencies, APRA will advise the insurer of further progress that is needed before the insurer continues with the application seeking approval to use the IMB Method.
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APRA’s approval to use the IMB Method to determine MCR will be subject to a comprehensive model review process including:
(a) submission by the insurer of a detailed application for approval, with comprehensive information about the ECM and RCM, its governance and use, and the risk management environment of the insurer; and
(b) one or more on-site visits by APRA to the insurer to discuss the detail of the ECM and RCM, risk management systems, and surrounding governance and organisational structure and controls.
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If it is satisfied that the criteria specified in this Standard have been met, APRA will approve the use of the RCM to determine the insurer’s MCR. Approval is given by APRA modifying relevant requirements in GPS 110 or GPS 111 pursuant to section 32(3A) of the Act. Modification may include requirements to be met on a continuing basis, including specifying that the MCR determined using the RCM will be subject to a minimum that is expressed as a percentage of the Prescribed Method calculation. During the first two years of the use of the IMB Method by an insurer, that minimum is to be 90 per cent of the amount determined using the Prescribed Method.
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Use of the IMB Method does not relieve an insurer from complying with the following aspects of the capital standards:
(a) deductions from capital specified in GPS 111 and GPS 112;
(b) investment concentration charges and investment risk capital charges on reinsurance assets related to a non-APRA-authorised reinsurer specified in GPS 114; and
(c) the treatment of holdings in related companies representing retained profits that are equity accounted.
In order to avoid double-counting, any assets which are dealt with in accordance with paragraphs (a) to (c) above in the RCM, may be treated as risk-free or risk-reduced, in a manner agreed with APRA.
- The RCM submitted to APRA for approval must include: