Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p20
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 51892–54905

a party only if the reinsurance arrangement meets the requirements (if any) for documentation of reinsurance contracts applicable in that jurisdiction.[30]

    10.         Subject to paragraph 11 of this Attachment, a Level 2 insurance group must have, at the inception date of its catastrophe reinsurance program, a contractually agreed reinstatement of its catastrophe reinsurance arrangements that reduces its natural perils vertical requirement. A Level 2 insurance group with multiple inception dates for its catastrophe reinsurance program must consult with APRA to determine the approach to the inception date in this paragraph.
    11.         A Level 2 insurance group that does not have a contractually agreed reinstatement of its catastrophe reinsurance program as required by paragraph 10 of this Attachment must demonstrate to APRA that it is not practical or appropriate given the nature of its reinsurance arrangements. The Level 2 insurance group must set out its approach to the placement of reinstatement of cover in its ReMS. If APRA is not satisfied with the approach taken by the insurer, it may apply a supervisory adjustment to the prescribed capital amount in accordance with paragraph 35 of GPS 110.[31]
    12.         During the period of the catastrophe reinsurance program, a Level 2 insurance group must review and consider the adequacy of reinstatements of all or parts of its reinsurance program, including the requirements of paragraph 11 of this Attachment. This review must also consider the financial and operational implications of not having a sufficient number of contractually agreed reinstatements during the period of cover. Details of this review must be included in the Level 2 insurance group's ReMS and ICAAP.

Use of alternative capital and risk mitigants
    13.         If a Level 2 insurance group is considering the use of protections including alternative capital or risk mitigants to reduce the Insurance Concentration Risk Charge, the insurer must apply to APRA for approval to include that mitigant in the calculation of the Insurance Concentration Risk Charge. This includes, but is not limited to, the use of securitisation and catastrophe bonds.

Catastrophe models
    14.         It is common practice for a Level 2 insurance group to use computer-based modelling techniques, developed either in-house or by external providers, to estimate likely losses under different catastrophe scenarios. If a Level 2 insurance group uses such a model, the model must be conceptually sound and capable of consistently producing realistic calculations. A Level 2 insurance group must be able to demonstrate:
       (a)          that the model has been researched and tested;

       (b)          that the Level 2 insurance group has taken measures to ensure that the data used to estimate its losses is sufficiently consistent, accurate and complete, and there is appropriate documentation of any estimates of data used; and

       (c)          an understanding