Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p7
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 16751–19819

determined for the other.
28.         Subject to paragraphs 9 and 12, NP HR must be calculated at the reporting date on or prior to the inception date of the insurer's catastrophe reinsurance program and then held constant for the remaining duration of the catastrophe reinsurance program.[7] If the catastrophe reinsurance program of an insurer has multiple inception dates, the insurer must agree with APRA the reporting date that will apply to the calculation of NP HR. The NP HR calculation must only include potential reinsurance recoverables that were contractually agreed on or before the relevant reporting date.

H3 requirement
29.         The H3 requirement is calculated as:
       (a)          the greater of:

           (i)            three times the 'H3 loss' defined in paragraph 30 less 'H3 reinsurance recoverables' defined in paragraph 31; and

         (ii)         three times the 'net H3 loss' defined in paragraph 32;

    less

       (b)          'H3 aggregate offset' defined in paragraph 33; less

       (c)          'H3 reinstatement premiums' defined in paragraph 34; plus

       (d)          'H3 reinstatement cost' defined in paragraph 35.

    An insurer does not need to calculate amounts for sub-paragraphs 29(a)(i) and 29(a)(ii) if it is able to demonstrate that one of these amounts is expected to be materially lower than the amount determined for the other.
30.         An insurer that has exposures to natural perils must determine the gross loss arising from the occurrence of a single event, where that loss is not less than the whole-of-portfolio annual loss with a 10 per cent probability of occurrence (H3 loss). This amount must not include any allowance for potential reinsurance recoverables. The calculation of H3 loss must include:
       (a)          the impact of the event on all classes of business of the insurer;

       (b)          an allowance for non-modelled perils[8]; and

       (c)          potential growth in the insurer's portfolio.

31.         An insurer that has exposures to natural perils must determine the level of potential reinsurance recoverables should there be the occurrence of three H3 losses over the catastrophe reinsurance program treaty year (H3 reinsurance recoverables). The reinsurance recoverables must not include any amounts due from aggregate reinsurance cover as this is provided for under paragraph 33.
32.         An insurer that has exposures to natural perils must determine the net loss[9] arising from the occurrence of a single event, where that net loss is not less than the whole-of-portfolio annual net loss with a 10 per cent probability of occurrence (net H3 loss).
33.         An insurer may reduce its H3 requirement for potential reinsurance recoverables from aggregate reinsurance cover (H3 aggregate offset). The insurer must not allow for any reinstatements of aggregate reinsurance cover unless these have been contractually agreed with the reinsurer(s). If reinstatements are included, the cost of reinstatement must be netted from the offset.