Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p17
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 43461–46471

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 business that is covered by an LMI's reinsurance arrangements and therefore relevant to the Available Reinsurance calculation will vary for each LMI. In some cases, the level of paid claims, Outstanding Claims Liability and/or Premiums Liability[21] for the period of the Prescribed Stress Scenario may need to be allowed for in determining how much reinsurance will be available to meet claims arising from the Prescribed Stress Scenario. If an LMI allows for any of these amounts in its Available Reinsurance calculation, the level must be subject to review by the Appointed Actuary, as part of prescribed actuarial advice[22] or through other written advice.

    21.         An LMI must allocate the PML, and any addition to this in accordance with paragraph 20 of this Attachment, over each year of the prescribed three-year stress scenario and then apply its reinsurance program(s) to the resulting projected claims. To the extent that approximations are necessary, a best estimate approach must be used.

    22.         In calculating Available Reinsurance, the LMI must consider the impact of the Prescribed Stress Scenario on its overall reinsurance arrangements and take account of all the relevant financial impacts.[23]
    23.         APRA may require the LMI to vary the amount of Available Reinsurance applied in the LMI's calculation of its LMICRC.[24]

Allowable Reinsurance

    24.         The amount of Available Reinsurance to be deducted from the PML in determining the LMICRC is limited to a maximum of 60 per cent of the PML, irrespective of the amount available under paragraphs 19 to 23 of this Attachment. This amount of Available Reinsurance is referred to as 'Allowable Reinsurance'.

Net premiums liability deduction
    25.         Net premiums liability of the LMI that relate to an economic downturn may be deducted from the PML in determining the LMICRC. The percentage of total net premiums liability of the LMI that is deducted must be determined by the Appointed Actuary. The methodology for the determination of the percentage must be included in the AVR.

Table A - PD, LGD and seasoning factors to be applied in determining the PML of LMIs

Standard loans

The aggregate PD and LGD factors by LVR, over the three-year scenario, for standard loans are:

LVR                PD factor  LGD factor – 100 per cent cover  LGD factor – top cover
Greater than 100%  14.0%      40%
95.01 – 100%       8.2%       40%
90.01 – 95%        5.1%       40%                              Minimum of:
85.01 – 90%        3.2%       30%                              100%; or
80.01 – 85%        2.0%       30%                              LGD factor /
70.01 – 80%        1.9%       30%