LPS 115 definition

LPS 115 means APRA Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge.

Examples of LPS 115 in a sentence

• Under LPS 115, the requirements relating to the event stress margin include: ▶ application term: not explicitly identified, but the APRA pandemic scenario implies that it should be 12-24 months; ▶ purpose: to reflect the impact of a single event which could cause multiple claims (mortality and/or morbidity).

• No allowance should be made for diversification between mortality and morbidity as this diversification benefit is explicitly set out in LPS 115.

• This is because diversification between morbidity and mortality is applied via the correlation matrix under paragraph 42 of LPS 115.

• Considerations for diversification Under LPS 115, there is explicit allowance for the diversification benefits between: ▶ random and future margins; and▶ morbidity and mortality margins.

• The following sections discuss considerations for determining stress margins under LPS 115 and sets out a framework which draws from the approaches used by general insurers.

• The Standard Method requires the calculation of an asset risk charge in accordance with LPS 114 and an insurance risk charge in accordance with LPS 115.

• This represents the total value of stressed policy liabilities determined in accordance with LPS 115, net of all expected reinsurance recoveries.

• The following sections discuss: a possible framework; the sources of information that can be used to determine an appropriate stress margin for individual risks; as well as an approach to aggregate the risks together to form the future stress margin required under LPS 115.

• The stressed value of a reinsurance asset is the amount by which the stressed policy liabilities of the fund (as determined under LPS 115) would increase, if the stressed policy liabilities were determined gross of that particular reinsurance exposure.

• The Standard Method is summarised in LPS 110, with further details outlined in: • Prudential Standard LPS 114 (Capital Adequacy: Asset Risk Charge) (“LPS 114”); • Prudential Standard LPS 115 (Capital Adequacy: Insurance Risk Charge) (“LPS 115”); • Prudential Standard LPS 117 (Capital Adequacy: Asset Concentration Risk Charge)(“LPS 117”); and • Prudential Standard LPS 118 (Capital Adequacy: Operational Risk Charge) (“LPS 118”).