APRA is consulting on revisions to LPS 117, which is the prudential standard on the asset concentration risk charge (ACRC) as part of the capital adequacy requirements. The consultation document (Attachment A) outlines the main areas where APRA is considering options for revising LPS 117, particularly in terms of the restrictions on exposures to offshore reinsurers to ensure that the risks are constrained within the APRA appetite. The comment period on the consultation ends on May 10, 2019. Based on the inputs received, APRA expects to release a discussion paper, accompanied by draft revised prudential standards, for consultation in the second half of 2019.
The review considers, among other factors, aspects of LPS 117 that relate to the prudential requirements in relation to reinsurance arrangements. APRA is reviewing the following:
- Asset concentration limits of LPS 117 relevant to exposures arising from reinsurance arrangements
- The treatment of risk mitigants under LPS 117
- Other issues, including investment risk-sharing and consequential amendments
LPS 117 prescribes the method for calculating the asset concentration risk charge component of the prescribed capital amount for a life company. The purpose of the standard is to ensure a life company maintains adequate capital against the asset concentration risks associated with its activities. The review is being undertaken to ensure that the standard remains fit-for-purpose and in line with the objectives of the mandate of APRA. The review is being undertaken in the context of APRA’s observation of an increase in the use of offshore reinsurers, particularly in the group risk market, which can put at risk the ability of APRA to effectively supervise the Australian life insurance industry as a whole.
Comment Due Date: May 10, 2019
Keywords: Asia Pacific, Australia, Insurance, LPS 117, Asset Concentration Risk Charge, Capital Adequacy, Offshore Reinsurer, APRA
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