The Australian Prudential Regulation Authority (APRA) has revised prudential standard 117 concerning the asset concentration risk charge, after discovering an error in its drafting.

It says the standard’s definition of APRA-regulated groups, used to determine asset concentration limits for non-reinsurance exposures, created unintended consequences for insurers.

The standard requires insurers to maintain adequate capital against risk associated with a concentration of assets or counterparties in their businesses.

The standard stated a counterparty is not part of an APRA-regulated group if its parent company is not APRA-regulated.

This meant lower limits for exposures to counterparties that are APRA-regulated but owned by a foreign parent.

“This was not APRA’s intention,” the regulator says in a letter to general insurers and Level 2 insurance groups.

The revised standard says exposures to counterparties that are 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.

Life insurance non-operating holding companies have also been added to the revised standard, while other minor changes provide consistency with other standards.