Adverse Event StressAdverse Event Stress

Adverse Event Stress

1. The Adverse Event Stress quantifies the impact of an industry lapse scenario. This stress is focused on the lapse of younger policy holders resulting in an adverse event on the insurer.
2. The Adverse Event Stress is based on the following parameters:
   1. 25% of all policies where the policyholder is aged under 65 years of age lapse immediately. Where the lapsing policies provide insurance for multiple people, all insured persons within these policies also lapse immediately;
   2. the accrued premium and claims incurred of those who lapse are the average for their age cohort. This is to be applied equally across all states, scales, products and across hospital and general treatment. This does not focus on any particular cohort other than age;
   3. the calculated deficit per SEU is to be increased by 20%. This reflects the impact on risk equalisation from fewer younger policy holders. The calculated deficit is the average amount payable for each SEU as defined in sub-rule 11(1)(d) of the Private Health Insurance (Risk Equalisation Policy) Rules 2015 or its replacement; and
   4. other business expenses are to be reduced only by variable costs which would be lower immediately following the stress. These must reflect the other business expenses of the insurer over the 12-month period without specific management action as defined in paragraphs 28 to 33.