Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p16
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 40980–43763

an LMI writing inwards reinsurance on a non-proportional basis, the PML for each of these contracts is calculated by:

       (a)          determining the impact of the Prescribed Stress Scenario on the business that is reinsured by applying the rules in paragraphs 8 to 11 of this Attachment; and

       (b)          determining under the terms of the inwards reinsurance contract, the amount of claim by the cedant against the LMI that will arise under (a) above.

   This amount becomes the LMI's PML.

    13.         For an LMI writing coverage for an additional loan, or otherwise changing or extending an individual LMI policy, the LMI must determine the PML based on the total sum insured to which it is exposed and the LVR must be based on the total loan as at the most recent date of underwriting (and in accordance with paragraph 2(b) of this Attachment). The age of the individual LMI policy must be based on the origination date of the original loan and not the date of the extension to the individual LMI policy, unless a different methodology has been agreed with APRA.
    14.         For an LMI writing any other lenders mortgage insurance business not captured in paragraphs 9 to 13 of this Attachment, the LMI must consult with APRA. APRA must approve the method for calculating the PML in these instances.
    15.         APRA may direct an LMI to assume that the sum insured, LVR or age of a particular loan or group of loans is either:

       (a)          the sum insured, LVR or age as specified in APRA's direction; or

       (b)          the sum insured, LVR or age worked out by applying instructions contained in APRA's direction.

    16.         APRA may determine a formula for the calculation of the PML in relation to an exposure that does not readily fit into the definitions of loans and / or coverage types.
    17.         APRA may direct an LMI to reclassify a loan where it considers the relevant factor(s) in Table A of this Attachment of the original classification do not reflect the inherent risk of the loan.

LMIs in run-off

    18.         For an LMI no longer writing new business (i.e. in run-off), the sum insured is expected to decrease over the three-year scenario and it may be appropriate for an LMI in run-off to adjust its PML downwards. The methodology for adjusting an LMI's PML in a run-off situation must be approved by APRA and documented in the LMI's ReMS.

Available Reinsurance
    19.         In addition to the requirements on potential reinsurance recoverables in this Prudential Standard (refer to paragraphs 13 and 14 of this Prudential Standard), only reinsurance arrangements that are contractually committed may be applied during the Prescribed Stress Scenario.

    20.         APRA recognises that the