Document ID: chunk:federal_register_of_legislation:F2023L00733:reg:7
Version: federal_register_of_legislation:F2023L00733
Segment Type: reg
Provision Reference: reg 7
Character Range: 23709–25449

7                   20

67.         For the purpose of the default stress, the value of reinsurance assets is to be the central estimate of reinsurance assets as measured in accordance with Prudential Standard HPS 340 Insurance Liability Valuation (HPS 340). For other assets, the default factor must be applied to the amount of loss that would be incurred if the counterparty defaulted and no recovery was made.
68.         For unpaid premiums the factors are four per cent for premiums due less than six months previously and eight per cent for other premiums due.
69.         For unclosed business a four per cent factor applies.
70.         The following types of unsecured loans have a 100 per cent default factor applied:
(a)          loans to directors of the private health insurer, or their spouses;
(b)          loans to directors of related bodies corporate, or their spouses;
(c)          loans to a parent or related company that are not on commercial terms; and
(d)         loans to employees exceeding $1,100.
71.         Assets guaranteed by an Australian state or territory government must be rated up one grade. For example, assets with counterparty grade 1 must be treated as grade 1 (government) and assets with counterparty grade 2 must be treated as grade 1 (other).

Reinsurance assets due from non-APRA-authorised reinsurers
72.         Reinsurance assets due from non-APRA-authorised reinsurers are subject to the default stress factors that are higher than would otherwise apply under paragraph 66.  These are set out in Table 3 below.
    Table 3: Default factors by counterparty grade for non-APRA-authorised reinsurance assets
Counterparty grade  Default factor (%)
1 (government)      2
1 (other)           2