Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p14
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 35664–38667

the premium; that is, the loan amount must be increased by the amount of the capitalised premium, irrespective of whether the premium is insured. The inclusion of a First Home Owners Grant in the deposit for a mortgaged property will not otherwise increase the LVR of a loan;

       (d)          'Probability of default' (PD) is the risk of default by the borrower;

       (e)          'Loss given default' (LGD) is the loss to the LMI upon default by the borrower;

       (f)           'Age' is the length of time from the date of origination of the loan to the date of calculation for the purposes of determining the seasoning factors in Table A of this Attachment;

       (g)          A 'standard loan' is a loan predominantly secured by residential property and meets the following criteria:

           (i)  the LMI or lender has formally verified the borrower's income and employment; and
           (ii)  the borrower passes standard credit checks and income requirements as documented in the LMI or lender's underwriting or credit policies and procedures;

       (h)          A 'non-standard loan' is a loan predominantly secured by residential property which does not meet the criteria in paragraph 2(g) of this Attachment;

       (i)            A 'commercial loan' is a loan that is not predominantly secured by a registered mortgage over residential property;

       (j)            'Coverage type' refers to whether the 'LMI policy' of insurance provided is for 100 per cent of the loan or pool amount, or less than 100 per cent of the loan amount or pool amount. The latter is referred to as top cover for 'individual LMI policies' and partial cover for 'pooled LMI policies';

       (k)          'Individual LMI policy' is lenders mortgage insurance underwritten and issued in respect of an individual loan. Bulk and/or tranche transactions associated with securitisations, where each loan is individually insured, falls into this category;

       (l)            'Pooled LMI policy' is lenders mortgage insurance underwritten and issued in respect of a pool of loans. For clarity, each loan is not individually insured;

       (m)        'Premiums liability' is calculated in accordance with Prudential Standard GPS 340 Insurance Liability Valuation (GPS 340). 'Net premiums liability' is the premiums liability after netting of reinsurance recoverables and non-reinsurance recoveries. Net premiums liability is also calculated in accordance with GPS 340; and

       (n)          'Outstanding claims liabilities' are as calculated in accordance with GPS 340.

PML and Prescribed Stress Scenario

    3.             For the purpose of this Attachment, the 'Probable Maximum Loss' (PML) is assumed to arise from a catastrophic event such that the size of loss from the three year event is equal to a loss with a 0.5 per cent probability of occurrence. APRA requires the PML to be determined on the basis of a Prescribed Stress Scenario as defined in paragraph 4 of this