APRA rectifies error that loosened rules for overseas insurer parent companies

APRA rectifies error that loosened rules for overseas insurer parent companies | Insurance Business

APRA rectifies error that loosened rules for overseas insurer parent companies
APRA has identified and rectified an error in Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge which resulted in lower limit exposures to counterparties that are APRA-regulated but owned by an overseas parent.

The current definition is drafted such that a counterparty is not part of an APRA-regulated group if the ultimate parent is not APRA-regulated.

The application of this definition results in lower limits for exposures to counterparties that are APRA- regulated, but owned by an overseas parent. APRA said this was not its intention.

APRA has addressed this error by specifically including references to APRA-regulated counterparties in paragraph 16 of a revised version of GPS 117.

Under the revised standard, exposures to counterparties that are specifically APRA- regulated (but foreign owned) will be subject to the same asset concentration limits as exposures to counterparties where the ultimate parent is APRA- regulated.

After reviewing GPS 117, APRA identified three “minor” matters: GPS 117 now includes a life insurance non-operating holding company as APRA-regulated; and APRA has aligned the definition of ‘eligible collateral terms’ with the definition that appears in Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge.

The revised steps come into force on 1 July.