Document ID: chunk:federal_register_of_legislation:F2014L01824:body:0:p12
Version: federal_register_of_legislation:F2014L01824
Segment Type: other
Provision Reference: 
Character Range: 28728–31653

to year two and 25 per cent to year three of the Prescribed Stress Scenario.

  2.2.          Adjustment to the PML

For a lenders mortgage insurer (LMI) no longer writing new business (i.e. in run-off), the sum insured is expected to decrease over the three-year scenario and it may be appropriate for an LMI in run-off to adjust its PML downwards. The methodology for adjusting an LMI's PML in a run-off situation must be approved by APRA and documented in the LMI's Reinsurance Management Strategy (ReMS).

A reduction in PML is to be entered as a positive amount. Do not enter any other adjustments to PML in this field.

  2.3.          Adjusted PML

This is automatically calculated as Item 2.1 less Item 2.2.

  2.4.          Available reinsurance

Report the amount of available reinsurance for each of the three years of the Prescribed Stress Scenario. The methodology for calculating available reinsurance is detailed in Attachment A of GPS 116.

  2.5.          Allowable reinsurance

This is the lesser of Available reinsurance and 60 per cent of the Adjusted PML. It is automatically calculated by the form.

  2.6.          PML net of reinsurance

This is automatically calculated as Item 2.3 less Item 2.5.

  2.7.          Net premiums liability deduction

In determining the LMI Concentration Risk Charge (LMICRC), this is the value of the deduction from the PML, allowed under GPS 116, for net premiums liability of the LMI that relates to an economic downturn.

It is to be reported as a positive amount.

  2.8.          Adjustments to LMICRC as approved by APRA

If APRA is of the view that the Standard Method for calculating the LMICRC component of the prescribed capital amount does not produce an appropriate outcome in respect of a reporting insurer, or a reporting insurer has used inappropriate judgement or estimation in calculating the LMICRC, APRA may adjust the LMICRC calculation for that reporting insurer.

An increase in the LMICRC is to be reported as a positive amount.

  2.9.          LMI Concentration Risk Charge

This is automatically calculated as Item 2.6 less Item 2.7 plus Item 2.8.

  2.10.     LMI Concentration Risk Charge / PML

This is automatically calculated as Item 2.9 divided by Item 2.3.

GRF_116_5: Probable Maximum Loss for LMIs – Additional Information

These instructions must be read in conjunction with the general instruction guide.

Explanatory notes

Section 1: Inwards reinsurance

This section relates to policies held with the insurer by other lenders mortgage insurers (LMIs).

Section 2: Large liability exposures by originator

Information is to be reported in this section for the five largest liability exposures by originator.

Calculation of LMICRC

The information on this form will not directly affected the calculation of the LMI concentration risk charge

Specific reporting instructions

Section 1: 1.1

(1) LVR