Document ID: chunk:federal_register_of_legislation:F2023L00207:body:0:p7
Version: federal_register_of_legislation:F2023L00207
Segment Type: other
Provision Reference: 
Character Range: 16851–19811

0          1          0       0          0  0
Morbidity Future  0.25       0          1       0          0  0
Morbidity Random  0          0          0       1          0  0
Event             0          0          0       0          1  0
Longevity         -0.25      0          0       0          0  1

43.         The adjusted stress margins must be determined so that when the adjusted stress margins and management actions for the random, future, event and longevity stresses are applied simultaneously, the increase in RFBEL and PPL equals the combined impact of the individual stresses, as determined using the formula in paragraph 41.
44.         If the stressed RFBEL or stressed PPL changes in a linear relationship with changes in the stressed margin, the adjusted stress margin can be determined by multiplying the unadjusted stress margins by a diversification factor. The diversification factor is determined by taking the combined impact of the individual stresses, as determined using the formula in paragraph 41, and dividing this amount by the sum of the individual stress impacts.
45.         If the relationship between stressed RFBEL or stressed PPL, and stressed margin is not linear, an alternative method of determining the adjusted stress margin must be used that satisfies the requirements of paragraph 43. An alternative method must always be used for determining the adjusted stress margin for Disability Income Insurance claim termination rates.

Lapses
46.         The stress margin for lapses[4] must be determined by the Appointed Actuary, having regard to the nature of the company's lapse risks. The stress must be determined so that the Insurance Risk Charge for the statutory fund has a 99.5 per cent probability of sufficiency over a 12 month period. The lapse stress may allow for correlations with other insurance stresses, with the exception of servicing expenses. The lapse stress may vary for different types of policy. A decision as to whether to increase or reduce lapse rates must be made for each type of policy depending on whether an increase or reduction would increase the stressed policy liabilities.

Servicing expenses
47.         The stress margin for servicing expenses is a 10 per cent increase to the best estimate of future unit costs for servicing expenses.
48.         The stress need not be applied to any component of the statutory fund expenses which is contractually agreed for the life of the policy, for example, renewal commission. The stress need not be applied to the fees payable by a friendly society benefit fund to its management fund.
49.         Unit costs must cover the expected maintenance cost of servicing each policy in the twelve months following the reporting date.
50.         If the Best Estimate Assumption depends on a service agreement or other contractual arrangement which does not adequately reflect the long term, sustainable costs of operating the business, the stress