Document ID: chunk:federal_register_of_legislation:F2023L00207:body:0:p6
Version: federal_register_of_legislation:F2023L00207
Segment Type: other
Provision Reference: 
Character Range: 14020–17186

scenario with the following impacts on mortality and morbidity claims experience:
       (a)          annual mortality rates at each age increase by 0.5 per thousand for the two years following the reporting date;
       (b)          an annual incidence rate of total disablement at each age, as a result of the event, of 10 per cent of lives insured for the two years following the reporting date;
       (c)          of those lives becoming disabled as a result of the event, half remain disabled after 14 days, one quarter remain disabled after 30 days and none remain disabled after 60 days; and
       (d)          if disability continues to the end of the policy waiting period, one month's benefit will be paid. For waiting periods other than zero, 14, 30 or 60 days, interpolation must be used to find the proportion of policies for which a benefit will be paid.
37.         The pandemic scenario may be assumed to reduce the stressed policy liabilities for policies subject to longevity risk. However the outcome of applying the pandemic scenario must not result in stressed policy liabilities being less than adjusted policy liabilities for any of the product groups defined in paragraph 16.

Longevity stress
38.         The 'longevity stress', before adjustment for diversification, is a 20 per cent decrease in the best estimate mortality rate for each age from the reporting date for the remaining term of the liabilities.

Impact of individual stress margins
39.         The impact of applying each of the random, future, event and longevity stresses must be determined in isolation as the increase to:
       (a)          the RFBEL for non-participating benefits; and
       (b)          the PPL for participating benefits.

Diversification factors and adjusted stress margins
40.         The stressed policy liabilities must be determined using 'adjusted stress margins' and management actions for the random, future, event and longevity risks. The adjustments are to allow for diversification between risks. The method for determining the adjusted stress margins and management actions is described in the following paragraphs.
41.         The combined impact of the random, future, event and longevity stresses, after allowing for correlations between these stresses must be determined using the formula:

    where:

       (a)           is the capital charge for insurance stress x, summed over all policies in the statutory fund;
       (b)           is the sum over all combinations of stresses; and
       (c)           is the correlation between stresses x and y.
42.         The specified correlation matrix is:
                  Mortality  Morbidity  Event   Longevity
Future            Random     Future     Random
Mortality Future  1          0          0.25    0          0  -0.25
Mortality Random  0          1          0       0          0  0
Morbidity Future  0.25       0          1       0          0  0
Morbidity Random  0          0          0       1          0  0
Event             0          0          0       0          1  0
Longevity         -0.25      0          0       0          0  1

43.         The adjusted stress