Document ID: chunk:federal_register_of_legislation:F2023L00207:body:0:p3
Version: federal_register_of_legislation:F2023L00207
Segment Type: other
Provision Reference: 
Character Range: 5651–8822

(PPL), but using stressed assumptions instead of best estimate assumptions in respect of mortality, morbidity, longevity, lapses, servicing expenses and any other insurance contingencies such as take-up rates for non-financial options.
15.         Stressed assumptions must be used in determining the stressed policy liabilities for existing claims which have not yet been finalised, claims that have been incurred but not reported, and claims that are expected to be incurred in future.

16.         The stressed policy liabilities must provide for adjusted policy liabilities (calculated using the stressed assumptions) to be funded 12 months from the reporting date for those policies that are projected to remain in force at that date. This test must be applied separately for the following groups:
       (a)          non-participating benefits without entitlement to discretionary additions;
       (b)          non-participating benefits with entitlement to discretionary additions; and
       (c)          participating benefits.
    The stressed policy liabilities must be determined at sub-group level if the policy benefits for a sub-group of policies are determined by reference to the performance of particular assets that the life company has allocated to the liabilities for that sub-group.

Recognition of tax benefits
17.         Any tax benefits that would arise as a result of increasing the policy liabilities from the adjusted policy liabilities to the stressed policy liabilities should be assumed to be realisable for the purpose of determining the Insurance Risk Charge. An adjustment must be made to the prescribed capital amount when the capital charges are aggregated, if some or all of the tax benefits cannot be offset against deferred tax liabilities.

Management actions
18.         When determining the impact of each individual stress margin, and when determining the stressed policy liabilities, a life company must make allowance for the actions that it would expect to take in response to each type of stress, subject to the restrictions described below.
19.         These actions may include, but are not limited to:
       (a)          reducing termination values;
       (b)          reducing discretionary additions to benefits;
       (c)          increasing premium rates;
       (d)          increasing the fees deducted from policies; and
       (e)          reducing the fees payable by a friendly society benefit fund to its management fund.
20.         The allowances for management actions must be appropriate, justifiable and equitable in each of the scenarios. Any representations made in the relevant product disclosure documents must be taken into account in determining the management actions that would be applied. Management actions must satisfy policy owners' reasonable expectations.
21.         Termination values cannot be assumed to be reduced below minimum termination values.
22.         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