Prudential Capital Requirement

Prudential Capital Requirement

22. This Prudential Standard establishes a risk-based approach for measuring the capital adequacy of a fund or a life company. This required level of capital for regulatory purposes is referred to as the Prudential Capital Requirement (PCR). The PCR is intended to take account of the full range of risks to which a fund or life company is exposed.
23. A life company must ensure that the life company and each of its funds have a capital base, at all times, in excess of its PCR.
24. The PCR for a fund equals:
(a) a prescribed capital amount determined either:
(i) by applying the ‘Standard Method’ set out in this Prudential Standard; or
(ii) by using an internal model developed by the life company to reflect the circumstances of its business – the ‘Internal Model-based Method’ (IMB Method); or
(iii) by using a combination of the methods specified in (i) or (ii) above; plus
(b) any supervisory adjustment determined by APRA under paragraph 44.
25. The prescribed capital amount for a life company is the sum of the prescribed capital amounts of each of its funds. Regardless of the outcome of the method used for determining the prescribed capital amount, a life company’s prescribed capital amount cannot be less than $10 million.
26. The prescribed capital amount for a statutory fund with liabilities for variable annuity business must be calculated in accordance with Attachment A.
27. A life company intending to issue variable annuities must, before it issues these policies, obtain approval from APRA of the method to be used for calculating the prescribed capital amount for the statutory fund issuing these variable annuities.
28. The PCR for a life company is the sum of the PCRs of each of its funds (or such higher amount as determined by APRA under paragraph 44).