Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p15
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 38458–41245

from the three year event is equal to a loss with a 0.5 per cent probability of occurrence. APRA requires the PML to be determined on the basis of a Prescribed Stress Scenario as defined in paragraph 4 of this Attachment.

    4.             The 'Prescribed Stress Scenario' is in the form of a three-year economic or property downturn, and is applied to the business in force as at the calculation date. The LMI must assume a constant aggregate sum insured over the three-year scenario (except for LMIs in run-off as provided in paragraph 18 of this Attachment).

    5.             The modelled losses must be allocated in the proportion of 25 per cent to year one, 50 per cent to year two and 25 per cent to year three of the downturn. These losses include future claim payments in the lenders mortgage insurer's premiums liability that relate to an economic downturn.

Determining the lenders mortgage insurer concentration risk charge

    6.             Subject to paragraph 7 of this Attachment, the LMICRC is calculated by:

       (a)          working out the PML in accordance with paragraphs 8 to 18 of this Attachment;

       (b)          deducting the amount of Allowable Reinsurance in accordance with paragraphs 19 to 24 of this Attachment; and

       (c)          deducting the amount of net premiums liability relating to an economic downturn, in accordance with paragraph 25 of this Attachment.

    7.             LMICRC must not be less than 10 per cent of the PML as determined in paragraph 6(a) of this Attachment. This means that the sum of the deductions in 6(b) and 6(c) of this Attachment must not exceed 90 per cent of the PML.

Prescribed calculation of PML

    8.             The PML of an LMI is calculated by the addition of the amounts calculated in paragraphs 9 to 18 of this Attachment for all LMI policies in force at the calculation date.

    9.             For each individual LMI policy, the PML is the sum insured multiplied by all of the relevant factors that apply to the policy loan type as set out in Table A of this Attachment.

    10.         Where a policy or loan has characteristics of more than one loan and/or coverage type, the exposure must be recognised in the category that produces the highest PML for that exposure.
    11.         For each pooled LMI policy, the PML is calculated by applying the principles in paragraphs 9 and 10 of this Attachment and then applying the terms of the pool cover to the calculated PML amount.[20]
    12.         For 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