Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p6
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 14104–16991

reinsurance may receive inwards reinstatement premiums from cedants as a result of the event that gives rise to its NP PML or the net whole-of-portfolio loss determined in paragraph 23, as appropriate (NP reinstatement premiums). NP reinstatement premiums must only be included in NP VR if the reinsurance contract specifically stipulates that offsetting with the cedant will occur at the time of the payment of the reinsurance claim.

NP reinstatement cost
25.         An insurer that has exposures to natural perils must determine the cost (if any) of reinstating all catastrophe reinsurance cover relating to the reinsurance recoverables determined in paragraph 22 or paragraph 23, as appropriate (NP reinstatement cost). 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 current reinsurance market conditions. 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.

Other adjustments to NP VR
26.         An insurer may apply to APRA to recognise potential reinsurance recoverables from aggregate reinsurance cover. Aggregate reinsurance cover is eligible to be considered for inclusion in the NP VR once the aggregate reinsurance cover has reached its attachment point, or will as a result of the occurrence of NP PML or net whole of portfolio loss, as appropriate. The reinsurance recoverables from aggregate reinsurance cover must then be applied up until the cover has been exhausted by claims by the insurer or the date that the aggregate reinsurance treaty expires, whichever occurs first. The reinsurance arrangements must meet the requirements of paragraphs 13 and 14 to be considered under this paragraph. The insurer must agree with APRA a methodology for the determination of the adjustment that may be made for this type of reinsurance arrangement.

Natural perils horizontal requirements
27.         The natural perils horizontal requirement (NP HR) for an insurer that has exposures to natural perils is calculated as:
       (a)          the greater of 'H3 requirement' and 'H4 requirement' defined in paragraphs 29 and 36, respectively; less

       (b)          'PL offset' (if any) defined in paragraph 43.

    An insurer does not need to calculate both H3 requirement and H4 requirement if it is able to demonstrate that one of these amounts is expected to be materially lower than the amount determined for the other.
28.         Subject to paragraphs 9 and 12, NP HR must be calculated at the reporting date on or prior to the inception date of the insurer's catastrophe reinsurance program and then held constant for the remaining