Document ID: chunk:federal_register_of_legislation:F2023L00207:body:0:p4
Version: federal_register_of_legislation:F2023L00207
Segment Type: other
Provision Reference: 
Character Range: 8602–11572

Premium rate and fee increases cannot be assumed to occur within 12 months of the reporting date.[3] The 12 month period must be extended to allow for the time it would take for the life company to increase premium rates or fees in response to stresses occurring over the 12 month period. Any contractual guarantees that may restrict the timing and amount of premium rate or fee increases must be recognised.
23.         Premium rate or fee increases cannot be assumed as a response to the random mortality stress, the random morbidity stress or the event stress.
24.         The present value of any assumed premium or fee increases (determined using stressed assumptions) cannot exceed the increase in the present value of claims and expenses incurred after the date at which the premium or fees increases are assumed to become effective. This test must be applied to each group of policies that would be affected by the assumed premium or fee increases.
25.         The management actions for friendly societies must be in accordance with the existing rules of the benefit fund and not the broader range of management actions that may be accessed through a process of amending those rules.

Stress margins
26.         The stressed assumptions must be determined by a life company, by applying 'stress margins' to the best estimate assumptions. The stress margins must reflect the risk that outcomes may be worse than the best estimate assumptions.
27.         The following stress margins are required:
       (a)          mortality random stress;
       (b)          morbidity random stress;
       (c)          mortality future stress;
       (d)          morbidity future stress;
       (e)          event stress;
       (f)           longevity stress;
       (g)          lapse stress;
       (h)          servicing expense stress; and
       (i)            other insurance contingencies.
28.         The stress margins for random, future, event and longevity risks must be adjusted to allow for diversification between these risks as described in the section starting at paragraph 40.
29.         The mortality random and future stresses must only be applied to life policies where an increase in future mortality rates would increase net cash outflows from the life company. The longevity stress must only be applied to life policies where an increase in future mortality rates would reduce net cash outflows from the life company.
30.         The stress margins, before the adjustment for diversification, must be determined at a 99.5 per cent probability of sufficiency over a 12 month period. This means that, in the assessment of the Appointed Actuary, there is no more than a 0.5 per cent probability that the actual cost of claims will exceed the stressed estimate.
31.         For each type of stress, different margins may be applied to different types of policies. For example, there may be different morbidity random stresses for lump sum policies and