Get a plain-English read of Deferred Claims Liability Risk Charge

Turn the raw legal text into a practical explanation grounded in Health Insurance (prudential standard) determination No. 1 of 2025.

Deferred Claims Liability Risk Charge

The Deferred Claims Liability Risk Charge relates to the risk that the value of the deferred claims liability will be greater than the value determined in accordance with HPS 340.
The Deferred Claims Liability Risk Charge is calculated as:

Deferred claims liability at 99.5 per cent; less

Deferred claims liability; less

DCL aggregation benefit.

Where:

Deferred claims liability at 99.5 per cent is the deferred claims liability valued at a 99.5 per cent level of sufficiency. This means that, in the assessment of the private health insurer, there is no more than a 0.5 per cent probability that the actual cost will exceed this estimate.
Deferred claims liability is the value of deferred claims liability determined in accordance with HPS 340.
DCL aggregation benefit is:

DCL aggregation benefit equals open bracket D plus O close bracket minus root D squared plus O squared plus 2 times the correlation of D times O.

Where:

‘D’ is the difference between the Deferred claims liability at 99.5 per cent and the Deferred claims liability. It is calculated as:

Deferred claims liability at a 99.5 per cent as defined in paragraph 37(a); less

Deferred claims liability determined in accordance with HPS 340 as defined in paragraph 37(b).
‘O’ is the sum of all other components within the Insurance Risk Charge (i.e. the Insurance Liability Risk Charge and FER).
‘correlation’ is 20 per cent.