Document ID: chunk:federal_register_of_legislation:F2023L00690:reg:7:p1
Version: federal_register_of_legislation:F2023L00690
Segment Type: reg
Provision Reference: reg 7 (pt 1/9)
Character Range: 28602–31465

7                   100

    76.         A default factor of 100 per cent applies to a reinsurance recoverable due from a non-APRA-authorised reinsurer if:

       a)             the recoverable has become a receivable (i.e. it is due and payable);

       b)             the receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and

       c)             there is no formal dispute between the insurer and reinsurer in relation to that receivable.[10]

    77.         For the purposes of determining the amount of a reinsurance recoverable, if there is an offsetting arrangement between the regulated institution and the reinsurer that results in premium being withheld by the insurer in lieu of claim payments, the withholding of that premium is taken to be payment to the extent any claims payments are overdue. However, if there is a requirement for offsets to be approved by the reinsurer, the date of the offset request is taken to be the date that approval is given.

Aggregation formula
    78.         The aggregated risk charge component is calculated as:
    where
       (a)          Ax is the risk charge component for asset risk stress x;

       (b)          Ay is the risk charge component for asset risk stress y;

       (c)          ∑x,y is the sum over all combinations of asset risk stresses, excluding the default stress;

       (d)          Corrx,y is the correlation between asset risk stresses x and y;

       (e)          sign (x) is 1 for the equity, property and credit spreads stresses. For the real interest rates and expected inflation stresses, sign (x) is 1 if the stress is a decrease in rates, otherwise it is -1. For the currency stress, sign (x) is 1 if the stress is a depreciation of the Australian dollar against foreign currencies, otherwise it is -1; and

       (f)           sign (y) is defined in the same way as sign (x).

    79.         The correlation matrix is:
    Table 5: Asset Risk Charge correlation matrix
      RIR  INF  CUR  EQY  PROP  CSP
RIR   1    0.2  0.2  0.2  0.2   0.2
INF   0.2  1    0.2  0.4  0.4   0.2
CUR   0.2  0.2  1    0.6  0.2   0.4
EQY   0.2  0.4  0.6  1    0.4   0.8
PROP  0.2  0.4  0.2  0.4  1     0.4
CSP   0.2  0.2  0.4  0.8  0.4   1

    80.         The real interest rates, expected inflation and currency stresses apply in two directions. The aggregation needs to be performed twice for each of these stresses if both stresses produce a non-zero risk charge component, with the larger of the aggregates chosen. If two of the bidirectional stresses have a non-zero risk charge component for stresses in both directions, the aggregation will need to be performed four times — once for each combination of stresses. If all three of the bidirectional stresses have a non-zero risk charge component for stresses in