Record of resolutions of the Life Insurance Actuarial Standards Board: actuarial standards - incorporating actuarial standards 1.04, 2.04, 3.04, 6.03 and 7.02 (05/12/2005)
Capital Standard for the Management FundCapital Standard for the Management Fund/Shareholders’ Fund
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Capital Standard for the Management Fund/Shareholders’ Fund
The Management Capital Standard is established under the Life Act and establishes a requirement to hold capital in the management fund/shareholders’ fund to ensure the security of that fund and its business activities under adverse operating circumstances. This capital is additional to the capital requirements for the statutory funds.
The Management Capital Requirement is determined by considering the various risks which could impact the security of the company’s operations and, by consequence, policy owner entitlements and requiring the provision of a prudent level of reserve against such risks.
The approach to determining the Management Capital Requirement recognises the separate and distinct nature of a life company’s statutory funds in respect of its life insurance business and the extent to which the risks associated with undertaking life insurance business are provided for in the Solvency and Capital Adequacy Standards.
Security of the entitlements of policy owners, however, cannot be considered totally isolated from risks associated with operations outside the statutory funds. In the case of friendly societies, the risks associated with the administration and operational support of the life insurance business are borne outside the statutory funds. Further, a life company may operate businesses (other than life insurance related business) outside its statutory funds. The risks incurred in all respects have implications for the overall security of the company and hence of the policy owners.