Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p3
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 5775–8905

For clarity, this does not assume that two or more events occur in the same year.

Insurance Concentration Risk Charge
7.             This Prudential Standard sets out the method for calculating the Insurance Concentration Risk Charge for a regulated institution using the Standard Method to determine its prescribed capital amount.
8.             The Insurance Concentration Risk Charge for a regulated institution is intended to represent the net financial impact on the regulated institution from either a single large event, or a series of smaller events, within a one year period. The determination of the Insurance Concentration Risk Charge is based on the formulae and requirements set out in this Prudential Standard.

Insurance Concentration Risk Charge formula
9.             The 'Insurance Concentration Risk Charge' for an insurer is the greatest of the following amounts:
       (a)          the natural perils vertical requirement determined in accordance with paragraphs 18 to 26;

       (b)          the natural perils horizontal requirement determined in accordance with paragraphs 27 to 43;

       (c)          the other accumulations vertical requirement determined in accordance with paragraphs 44 to 52; and

       (d)          where applicable[1], the lenders mortgage insurer concentration risk charge determined in accordance with paragraph 53.

    An insurer does not need to calculate amounts for each of sub-paragraphs (a) to (d) above if it is able to demonstrate that the amount determined for one or more of those sub-paragraphs is always expected to be materially lower than the amount determined for one of the other sub-paragraphs.
10.         The Insurance Concentration Risk Charge calculated in paragraph 9 must not be less than zero.
11.         An insurer must not make tax adjustments to the amounts calculated in paragraph 9.
12.         Where there is a change in the insurer's business (for example, due to a material purchase or sale of a portfolio of business) or reinsurance program (for example, due to material cancellations or additions to reinsurance layers), the insurer must recalculate all applicable components of the Insurance Concentration Risk Charge. The insurer must consult with APRA to determine the approach to recalculate the natural perils horizontal requirement in paragraph 9.

Reinsurance arrangements
13.         In calculating potential reinsurance recoverables in any component of the Insurance Concentration Risk Charge[2], an insurer may take into account potential reinsurance recoverables receivable from a reinsurance arrangement to which it is a party only if the reinsurance arrangement:
       (a)          complies with the inception date and two month rules imposed under Prudential Standard GPS 230 Reinsurance Management (GPS 230);

       (b)          fails to comply with those rules as at the date of the relevant deadline, but subsequent to the deadline specified under the two month rule, the reinsurance arrangement is documented in accordance with the requirements of the two month rule; or

       (c)          has been treated by