Regulatory AlertsLPS 114 Capital Adequacy: Asset Risk Charge
The Australian Prudential Regulation Authority issued Prudential Standard LPS 114 to require all life insurers to maintain adequate capital against asset risks arising from market and credit exposures. The standard mandates that the Board of Directors ensure capital levels are commensurate with the business's risk profile and establishes a specific calculation method for the Asset Risk Charge. This charge is determined by aggregating the impacts of seven distinct stress tests, including real interest rates, inflation, currency, equity, property, credit spreads, and default scenarios.
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