Document ID: chunk:federal_register_of_legislation:F2023L00672:body:0:p12
Version: federal_register_of_legislation:F2023L00672
Segment Type: other
Provision Reference: 
Character Range: 30189–33197

must not be greater than the average period of discount in determining the premiums liability provision. The discount rate must be the relevant risk-free discount rates used by the Appointed Actuary in the AVR.
51.         An insurer must only apply the premiums liability adjustment in paragraph 48 or paragraph 49. The insurer must not apply the adjustment from both paragraphs 48 or 49 as this will result in the premiums liability provisions being deducted twice.

OA reinstatement cost
52.         An insurer that has exposures to other accumulations must determine the cost (if any) of reinstating all catastrophe reinsurance cover relating to the reinsurance recoverables determined in paragraph 49 (OA reinstatement cost). In determining this cost, if the insurer does not have contractually agreed rates for the reinsurance cover, the insurer must estimate the cost based on current reinsurance market conditions. The amount must not be less than the full original cost of the cover, with no deduction for the expiry of time since the inception of the reinsurance arrangements, unless the insurer is able to demonstrate to APRA that the amount materially overstates the cost that would prevail.

Lenders mortgage insurer concentration risk charge
53.         A lenders mortgage insurer must determine the lenders mortgage insurer concentration risk charge (LMICRC) by applying Attachment A.

Use of alternative capital and risk mitigants
54.         If an insurer is considering the use of protections including alternative capital or risk mitigants to reduce the Insurance Concentration Risk Charge, the insurer must apply to APRA for approval to include that mitigant in the calculation of the Insurance Concentration Risk Charge. This includes, but is not limited to, the use of securitisation and catastrophe bonds.

Catastrophe models
55.         It is common practice for an insurer to use computer-based modelling techniques, developed either in-house or by external providers, to estimate likely losses under different catastrophe scenarios. If an insurer uses such a model, the model must be conceptually sound and capable of consistently producing realistic calculations. An insurer must be able to demonstrate:
       (a)          that the model has been researched and tested;

       (b)          that the insurer has taken measures to ensure that the data used to estimate its losses is sufficiently consistent, accurate and complete, and there is appropriate documentation of any estimates of data used; and

       (c)          an understanding of the model used in estimating losses, including;

(i)            perils and elements that are not included in the model;
(ii)         assumptions and any estimates used in the modelling process; and
(iii)       the sensitivity of the model outputs as a result of the factors in (i) and (ii).

Review and reporting
56.         An insurer must document in its ReMS the process and methodologies for setting and monitoring its Insurance