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Life Insurance (prudential standard) determination No. 4 of 2023
Cost of Investment Performance GuaranteeCost of Investment Performance Guarantees
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Cost of Investment Performance Guarantees
| Objective and key requirements of this Prudential StandardThis Prudential Standard sets out the requirements for calculating the cost of investment performance guarantees provided in association with investment-linked contracts for the purpose of section 42 of the Life Insurance Act 1995.The ultimate responsibility for the calculation and compliance with the requirements of the Act in relation to investment performance guarantees lies with the Board of the life company.The key requirements of this Prudential Standard are that a life company must:calculate the cost of any investment performance guarantees associated with its investment-linked business in accordance with this Prudential Standard; andbe able to demonstrate that at all times the cost of any investment performance guarantees represents less than 5 per cent of the total policy liabilities of each statutory fund to which this Prudential Standard applies. |
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Authority
This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).
Application
2. This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[\[1\]](#_ftn1), except where expressly noted otherwise.
3. A life company must apply this Prudential Standard separately to each statutory fund where:
(a) the business of the fund consists of the provision of investment-linked benefits; and
(b) any of the policies referable to the fund includes an investment performance guarantee.
4. This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company which is carried on through its Australian statutory funds but not otherwise.[\[2\]](#_ftn2)
5. This Prudential Standard applies to life companies from 1 January 2013.
Interpretation
6. Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.
Limit on investment performance guarantees
7. A life company must, at all times, ensure that the ‘investment performance guarantee factor’ of a statutory fund to which this Prudential Standard applies does not exceed 5 per cent.[\[3\]](#_ftn3)
8. The investment performance guarantee factor of a statutory fund at a particular time is the proportion of the amount of the current policy liabilities of the fund at that time that represents the total cost, as at that time, of providing the investment performance guarantees included in policies referable to the fund.
9. For the purpose of paragraph 8, policy liabilities must be determined gross of reinsurance.