Document ID: chunk:federal_register_of_legislation:F2023L00734:body:0:p4
Version: federal_register_of_legislation:F2023L00734
Segment Type: other
Provision Reference: 
Character Range: 8285–11215

is the charge for the health insurance business, related to the Adverse Event Stress combined with the Prescribed Benefit Stress.
(b)          FERHRIB is the charge for health-related insurance business, related to the Prescribed Benefit Stress only.
(c)          Both components have a minimum value of zero, so any forecast profits after the stresses cannot be used to offset the charge of any other component.
20.         The FER, for each of HIB and HRIB, is calculated by stressing:
(a)          Benefits incurred; plus
(b)          Management expenses; less
(c)          Accrued premium.
    This is to be calculated for the 12 months from the reporting date using stressed assumptions as described in paragraphs 22 to 27. This is to be calculated net of any reinsurance arrangements.  There is no allowance for investment income or other parts of the business other than discounting as described in paragraphs 34 and 35.
21.         The stressed assumptions may be adjusted for Management Actions as defined in paragraphs 28 to 33.

Future Exposure Risk Charge – Health Insurance Business
22.         The Future Exposure Risk Charge for Health Insurance Business (FERHIB) is calculated as the losses occurring over the 12-months from the reporting date due to the combined Adverse Event Stress and the Prescribed Benefit Stress.

Adverse Event Stress
23.         The Adverse Event Stress quantifies the impact of an industry lapse scenario. This stress is focused on the lapse of younger policy holders resulting in an adverse event on the insurer.
24.         The Adverse Event Stress is based on the following parameters:
(a)          25% of all policies where the policyholder is aged under 65 years of age lapse immediately. Where the lapsing policies provide insurance for multiple people, all insured persons within these policies also lapse immediately;
(b)          the accrued premium and claims incurred of those who lapse are the average for their age cohort.  This is to be applied equally across all states, scales, products and across hospital and general treatment. This does not focus on any particular cohort other than age;
(c)          the calculated deficit per SEU is to be increased by 20%. This reflects the impact on risk equalisation from fewer younger policy holders. The calculated deficit is the average amount payable for each SEU as defined in sub-rule 11(1)(d) of the Private Health Insurance (Risk Equalisation Policy) Rules 2015 or its replacement; and
(d)          management expenses are to be reduced only by variable costs which would be lower immediately following the stress. These must reflect the management expenses of the insurer over the 12-month period without specific management action as defined in paragraphs 28 to 33.

Prescribed Benefit Stress – Health Insurance Business
25.         Prescribed Benefit Stress for HIB is an additional increase in the benefits incurred and