Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p4
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 8652–11781

as at the date of the relevant deadline, but subsequent to the deadline specified under the two month rule, the reinsurance arrangement is documented in accordance with the requirements of the two month rule; or

       (c)          has been treated by APRA, under GPS 230, as complying with the two month rule.

14.         In calculating potential reinsurance recoverables in any component of the Insurance Concentration Risk Charge[3], an insurer may take into account potential reinsurance recoverables receivable from a reinsurance arrangement only if the reinsurance arrangement meets the 'governing law' and 'dispute' requirements of GPS 230.
15.         Subject to paragraph 16, an insurer 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 (determined in accordance with paragraph 18). An insurer with multiple inception dates for its catastrophe reinsurance program must consult with APRA to determine the approach to the relevant inception date in this paragraph.
16.         An insurer that does not have a contractually agreed reinstatement of its catastrophe reinsurance program as required by paragraph 15 must demonstrate to APRA that it is not practical or appropriate given the nature of its reinsurance arrangements. The insurer must set out its approach to the placement of reinstatement of cover in its Reinsurance Management Strategy (ReMS). If APRA is not satisfied with the approach taken by the insurer, APRA may apply a supervisory adjustment to the prescribed capital amount in accordance with paragraph 35 of Prudential Standard GPS 110 Capital Adequacy (GPS 110).[4]
17.         During the period of the catastrophe reinsurance program, an insurer must review and consider the adequacy of reinstatements of all or parts of its reinsurance program, including the requirements of paragraph 16. 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 insurer's ReMS and Internal Capital Adequacy Assessment Process (ICAAP).

Natural perils vertical requirement
18.         The natural perils vertical requirement (NP VR) for an insurer that has exposures to natural perils is calculated as:
       (a)          the greater of:

           (i)            'NP PML' defined in paragraph 21 less 'NP reinsurance recoverables' defined in paragraph 22; and

         (ii)         the 'net whole-of-portfolio loss' defined in paragraph 23;

    less
       (b)          'NP reinstatement premiums' defined in paragraph 24; plus

       (c)          'NP reinstatement cost' defined in paragraph 25; less

       (d)          any other adjustments to NP VR in accordance with paragraph 26.

    An insurer does not need to calculate amounts for sub-paragraphs 18(a)(i) and 18(a)(ii) if it is able to demonstrate that one of these amounts is expected to be materially lower than the