Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p9
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 22236–25166

amounts for sub-paragraphs 36(a)(i) and 36(a)(ii) if it is able to demonstrate that one of these amounts is expected to be materially higher than the amount determined for the other.

37.         An insurer that has exposures to natural perils must determine the gross loss arising from the occurrence of a single event, where that loss is not less than the whole-of-portfolio annual loss with a 16.7 per cent probability of occurrence (H4 loss). This amount must not include any allowance for potential reinsurance recoverables. The calculation of H4 loss must include:
(a)          the impact of the event on all classes of business of the insurer;
(b)          an allowance for non-modelled perils[10]; and
(c)          potential growth in the insurer's portfolio.
38.         An insurer that has exposures to natural perils must determine the level of potential reinsurance recoverables should there be the occurrence of four H4 losses over the catastrophe reinsurance program treaty year (H4 reinsurance recoverables). The reinsurance recoverables must not include any amounts due from aggregate reinsurance cover as this is provided for under paragraph 40.
39.         An insurer that has exposures to natural perils must determine the net loss[11] arising from the occurrence of a single event, where that net loss is not less than the whole-of-portfolio annual net loss with a 16.7 per cent probability of occurrence (net H4 loss).
40.         An insurer may reduce its H4 requirement for potential reinsurance recoverables from aggregate reinsurance cover (H4 aggregate offset). The insurer must not allow for any reinstatements of aggregate reinsurance cover unless these have been contractually agreed with the reinsurer(s). If reinstatements are included, the cost of reinstatement must be netted from the offset. The insurer must agree with APRA a methodology for the determination of this adjustment. This methodology may allow for any portion of paid and outstanding claims and premiums liabilities that contribute to the insurer's retained losses for the purposes of the retention on any aggregate reinsurance cover, provided it does not result in a double-count between this offset and the PL offset determined in accordance with paragraph 43.
41.         An insurer that writes reinsurance may receive inwards reinstatement premiums from cedants as a result of the event that gives rise to four H4 losses or four net H4 losses, as appropriate (H4 reinstatement premiums). H4 reinstatement premiums must only be included in the H4 requirement if the reinsurance contract specifically stipulates that offsetting with the cedant will occur at the time of the payment of the reinsurance claim.
42.         An insurer that has exposures to natural perils must determine the cost (if any) of reinstating catastrophe reinsurance cover after the occurrence of the first three H4 losses or the first three net H4 losses,