Document ID: chunk:federal_register_of_legislation:F2023L00695:body:0:p5
Version: federal_register_of_legislation:F2023L00695
Segment Type: other
Provision Reference: 
Character Range: 11472–14523

they are captured in valuation models and data.
22.         Estimation of a standard deviation above the mean may present technical difficulties when components of the uncertainty in the central estimate do not permit statistical analysis to be undertaken. Estimation of a standard deviation above the mean will generally require both the exercise of judgement and technical analysis.
23.         The risk margin must not be used as a tool for smoothing the effect of changes in assumptions or valuation methods.
24.         From year to year, risk margins would generally be a similar percentage of the central estimate for each health insurance business and health-related insurance business, unless there has been a material change in uncertainty. Changes in uncertainty may derive from changes in a number of elements such as the private health insurer's risk profile or volume of business, or external factors (for example, legislative requirements). The Appointed Actuary must document any material changes.
25.         The risk margin may include an allowance for diversification between health insurance business and health-related insurance business. The Appointed Actuary must clearly document the justification for and method of determining such diversification allowance (which must be assessed on a holistic basis for the fund of the private health insurer).

Discount rates
26.         The rates to be used in discounting the expected future claims payments of insurance liabilities denominated in Australian currency for a class of business are derived from yields of Commonwealth Government Securities (CGS), as at the calculation date, that relate to the term of the future insurance liability cash flows.
27.         Where the term of the insurance liabilities denominated in Australian currency does not match the available term of CGS, current observable, objective rates are to be used as a reference point for the purpose of extrapolation. If there are no other suitable instruments, or the Appointed Actuary elects to use an instrument that does not meet this requirement, the Appointed Actuary must justify the reason for using that particular instrument in the insurer's FCR. Adjustments must be made to remove any allowances for credit risk and illiquidity that are implicit in the yields of those instruments.

Methods for valuing insurance liabilities including the central estimate and risk margin
28.         A method, or methods, must be adopted for valuing a private health insurer's insurance liabilities. Comprehensive actuarial analysis and modelling techniques should be employed, subject to considerations of materiality. The appropriateness of any method, or methods, will depend on:
(a)          the health insurance business and health-related insurance business being considered;
(b)          the nature, volume and quality of the available data in relation to the experience of the private health insurer and the private health insurance industry;
(c)          the circumstances of the private health insurer;