Document ID: chunk:federal_register_of_legislation:F2023L00733:front:0:p2
Version: federal_register_of_legislation:F2023L00733
Segment Type: other
Provision Reference: 
Character Range: 2777–5707

and commencement
2.             This Prudential Standard applies to all private health insurers except where expressly noted otherwise.
3.             A private health insurer must apply this Prudential Standard separately to each of its health benefits funds and its general fund, unless otherwise noted. The term 'private health insurer' refers to the private health insurer as a whole. The term 'fund' refers to each health benefits fund and the general fund, unless otherwise noted.
4.             This Prudential Standard applies to private health insurers from 1 July 2023.

Interpretation
5.             Terms that are defined in Prudential Standard HPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.

Asset Risk Charge
6.             This Prudential Standard sets out the method for calculating the Asset Risk Charge for each fund of a private health insurer.
7.             The Asset Risk Charge relates to the risk of an adverse movement in a fund's capital base due to credit or market risks. Both assets and liabilities may be affected. Off-balance sheet exposures may also be affected.

Asset Risk Charge calculation
8.             The Asset Risk Charge for a fund is calculated as the 'aggregated risk charge component' determined in accordance with paragraph 9.

Aggregated risk charge component
9.             A private health insurer must calculate, for each of its funds, the 'risk charge components' defined in paragraph 10, by considering the impact on the capital base of a fund of a range of stresses. These risk charge components are then aggregated using the formula set out in paragraphs 76 to 78, which allows for the likelihood of the scenarios modelled by the stress tests occurring simultaneously. The result of applying the formula is defined as aggregated risk charge component.

Risk charge components
10.         The risk charge components are calculated by determining the fall in the capital base of the fund in seven stress tests:
(a)          'real interest rates' determined in accordance with paragraphs 28 to 33;
(b)          'expected inflation' determined in accordance with paragraphs 34 to 37;
(c)          'currency' determined in accordance with paragraphs 38 to 41;
(d)          'equity' determined in accordance with paragraphs 42 to 45;
(e)          'property' determined in accordance with paragraphs 46 to 50;
(f)           'credit spreads' determined in accordance with paragraphs 51 to 62; and
(g)          'default' determined in accordance with paragraphs 63 to 75.
    These stresses are applied either directly to asset values or by way of changes to economic variables that in turn affect the value of both assets and liabilities. Some assets and liabilities may be impacted by more than one of the seven stress tests and will need to be considered in each relevant stress test. For the stresses in (a), (b) and (c), the impact on