APRA Consults on Options to Revise the Prudential Standard LPS 117
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.
Related Links
Comment Due Date: May 10, 2019
Keywords: Asia Pacific, Australia, Insurance, LPS 117, Asset Concentration Risk Charge, Capital Adequacy, Offshore Reinsurer, APRA
Related Articles
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
