Division Quantitative standards - Insurance (prudential standard) determination No. 6 of 2010 - Prudential Standard GPS 113 - Capital Adequacy: Internal model-based method - Quantitative standards

Quantitative standards

The insurer’s MCR must be an amount of capital sufficient for the insurer’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 insurer’s capital base, as and when they fall due. In determining the MCR, 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

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.

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