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Life Insurance (prudential standard) determination No. 2 of 2023
Servicing expense reserveServicing expense reserve
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Servicing expense reserve
52. The Insurance Risk Charge for the general (management) fund of a friendly society is the servicing expense reserve. The servicing expense reserve must be determined as:
(a) three times the deficiency (if any) expected to arise over the 12 months subsequent to the reporting date, between expected management fees in that period and expected servicing expenses relating to its life insurance activities; plus
(b) any additional deficiency that would arise if expected servicing expenses were increased by 10 per cent.
53. Where an allocation of the expenses of the management fund relating to life insurance activities into expense categories is not undertaken by a friendly society, servicing expenses are to be taken as 50 per cent of the total expenses related to the life insurance business.
54. If the management actions assumed in response to the asset risk or insurance risk stresses include a reduction in management fees paid by a benefit fund to the management fund, the reduced management fees must be used when determining the servicing expense reserve.
55. Any tax benefits that would arise as a result of including the servicing expense reserve in the liabilities of the friendly society for tax purposes should be assumed to be realisable for the purpose of determining the Insurance Risk Charge. An adjustment must be made to the prescribed capital amount when the capital charges are aggregated, if some or all of the tax benefits cannot be offset against deferred tax liabilities.
Adjustments and exclusions
56. APRA may, by notice in writing to a life company, adjust or exclude a specific requirement in this Prudential Standard in relation to that life company.
Transition
57. On application by a life company, APRA may grant transitional relief from the obligation for the life company to comply with any requirement in this Prudential Standard. Any relief granted by APRA under this paragraph will have effect until no later than 31 December 2014.