Document ID: chunk:federal_register_of_legislation:F2023L00734:body:0:p5
Version: federal_register_of_legislation:F2023L00734
Segment Type: other
Provision Reference: 
Character Range: 10950–13939

of the insurer over the 12-month period without specific management action as defined in paragraphs 28 to 33.

Prescribed Benefit Stress – Health Insurance Business
25.         Prescribed Benefit Stress for HIB is an additional increase in the benefits incurred and management expenses, as calculated in the Adverse Event Stress, by the HIB Stress % as defined in paragraph 14(c).

Future Exposure Risk Charge – Health-related Insurance Business
26.         The Future Exposure Risk Charge for Health-Related Insurance Business (FERHRIB) is calculated as the losses occurring over the 12 months from the reporting date due to the Prescribed Benefits Stress.
27.         Prescribed Benefit Stress for HRIB is an increase in forecast benefits incurred and management expenses by the HRIB Stress % as defined in paragraph 14(d).

Management actions
28.         When determining the impact of losses from the FER, a private health insurer may make allowance for the actions that it would expect to take in response to the stresses, subject to the restrictions described in paragraphs 29 to 33.
29.         Management actions may include, but are not limited to:
       (a)          changing coverage;

       (b)          changing management expenses;

       (c)          closing products; and

       (d)          migrating polices.

30.         The allowances for management actions must be appropriate and justifiable. Any contractual guarantees must be taken into account in determining the management actions that would be applied.
31.         Management actions cannot be assumed to occur within nine months of the reporting date. The nine month period must be extended if it is not sufficient time to allow the insurer to identify the event, assess the extent of the change, align to the insurer's risk appetite, implement the actions and for the actions to take effect.
32.         Where a private health insurer proposes to change products, the timeframes must include informing an adult insured under each policy about proposed changes a 'reasonable time before the change takes effect' as outlined in 93-20 (2) of the PHI Act.
33.         Following the implementation of any management action, any estimated insurance profits on HIB or HRIB cannot be used to reduce the FER. That is, any insurance profits forecast after management action cannot offset prior losses.

Discounting of the Future Exposure Risk Charge
34.         The determination of the FER of the fund under this standard may allow for the discounting of future cash flows in accordance with paragraph 35.
35.         The rates to be used in discounting cash flows relating to the FER are derived from yields of Commonwealth Government Securities (CGS), as at the calculation date, for the relevant duration.

Deferred Claims Liability Risk Charge
36.         The Deferred Claims Liability Risk Charge relates to the risk that the value of the deferred claims liability will be greater than the value determined