Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p2
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 2804–6044

the Insurance Concentration Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for general insurers and Level 2 insurance groups.

Table of Contents
Authority
Application and commencement
Level 2 insurance groups
Interpretation
Insurance Concentration Risk Charge
Insurance Concentration Risk Charge formula
Reinsurance arrangements
Natural perils vertical requirement
Natural perils horizontal requirements
Other accumulations vertical requirement
Lenders mortgage insurer concentration risk charge
Use of alternative capital and risk mitigants
Catastrophe models
Review and reporting
Adjustments and exclusions
Previous exercise of discretion
Attachment A – Lenders mortgage insurer concentration risk charge
Attachment B – Level 2 insurance groups

Authority
     1. This Prudential Standard is made under section 32 of the Insurance Act 1973 (the Act).

Application and commencement
2.             This Prudential Standard applies to each:
       (a)          general insurer authorised under the Act (insurer); and

       (b)          Level 2 insurance group as defined in Prudential Standard GPS 001 Definitions (GPS 001).

    Where a requirement applies to a Level 2 insurance group, the requirement is imposed on the parent entity of the Level 2 insurance group.
3.             This Prudential Standard applies to insurers and Level 2 insurance groups (regulated institutions) from 1 July 2023.

Level 2 insurance groups
4.             Paragraphs 9 to 59 and Attachment A apply to insurers only. The remaining paragraphs apply to all regulated institutions. Attachment B sets out additional requirements for Level 2 insurance groups.

Interpretation
5.             Terms that are defined in GPS 001 appear in bold the first time they are used in this Prudential Standard.
6.             For the purposes of this Prudential Standard:
       (a)          'aggregate reinsurance cover' includes:

           (i)            aggregate reinsurance cover that protects the regulated institution from an accumulation of retained losses from multiple events of a certain size; and

           (ii)          aggregate stop-loss reinsurance cover that protects the regulated institution from an accumulation of retained losses from multiple events on a part or totality of its portfolio;

       (b)          'natural perils' are all natural events, including, but not limited to, earthquakes, storms and conflagration as well as fire or surge following a natural peril, that affect property risks and other classes of business to which a regulated institution is exposed; and

       (c)          'whole-of-portfolio' is an estimation approach that takes into account all possible perils in all regions to determine the size of loss that could occur from a single event at a certain exceedance probability for a regulated institution's portfolio. The time horizon to be considered is one year. For clarity, this does not assume that two or more events occur in the same year.

Insurance Concentration Risk Charge
7.             This Prudential Standard sets out the method for calculating the Insurance Concentration Risk Charge for a regulated institution using