Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p8
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 19541–22485

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. The insurer must agree with APRA a methodology for the determination of this adjustment. This methodology may allow for any portion of paid and outstanding claims and premiums liabilities that contribute to the insurer's retained losses for the purposes of the retention on any aggregate reinsurance cover, provided it does not result in a double-count between this offset and the PL offset determined in accordance with paragraph 43.
34.         An insurer that writes reinsurance may receive inwards reinstatement premiums from cedants as a result of the events that give rise to three H3 losses or three net H3 losses, as appropriate (H3 reinstatement premiums). H3 reinstatement premiums must only be included in the H3 requirement if the reinsurance contract specifically stipulates that offsetting with the cedant will occur at the time of the payment of the reinsurance claim.
35.         An insurer that has exposures to natural perils must determine the cost (if any) of reinstating catastrophe reinsurance cover after the occurrence of the first two H3 losses or the first two net H3 losses, as appropriate (H3 reinstatement cost). The cost (if any) must reflect the cost of reinstating reinsurance cover up to the size of the third event. In determining this cost, if the insurer does not have contractually agreed rates for the reinsurance cover, the insurer must estimate the cost based on the reinsurance market conditions that would prevail after the occurrence of the events. The amount must not be less than the full original cost of the cover, with no deduction for the expiry of time since the inception of the reinsurance arrangements, unless the insurer is able to demonstrate to APRA that the amount materially overstates the cost that would prevail in the market after the occurrence of the events.

H4 requirement
36.         The H4 requirement is calculated as:
       (a)          the greater of:

           (i)            four times 'H4 loss' defined in paragraph 37 less 'H4 reinsurance recoverables' defined in paragraph 38; and

         (ii)         four times the net 'H4 loss' defined in paragraph 39;

    less
       (b)          'H4 aggregate offset' defined in paragraph 40; less

       (c)          'H4 reinstatement premiums' defined in paragraph 41; plus

       (d)          'H4 reinstatement cost' defined in paragraph 42.

    An insurer does not need to calculate amounts for sub-paragraphs 36(a)(i) and 36(a)(ii) if it is able to demonstrate that one of these amounts is expected to be materially higher than the amount determined for the other.

37.         An insurer that has exposures to natural perils must