Stress Test AmountStress Test Amount

Stress Test Amount

19. The stress test amount of a health benefits fund on the relevant day is the greater of:
(a) $0; and
(b) the amount calculated using the following formula:
– N – I – O + T
Where:
N is the health benefits fund’s stressed net margin estimate, calculated in accordance with paragraph 20.
I is the health benefits fund’s stressed investment income estimate, on the relevant day, calculated in accordance with paragraph 23.
O is the health benefits fund’s stressed other income estimate, on the relevant day, calculated in accordance with paragraph 24.
T is the amount of tax that may be attributable to the health benefits fund (which may be a negative amount to reflect future income tax credits), if it achieved its:
(i) stressed net margin estimate; and
(ii) stressed investment income estimate; and
(iii) stressed other income estimate;
for the 12 months after the relevant day.
20. The stressed net margin estimate (N) of the health benefits fund is calculated in accordance with the following formula:
P × NM%
Where:
P is the premium income estimate of the health benefits fund on the relevant day.
NM% is the private health insurer’s estimate of its health benefits fund’s xth percentile net margin percentage for the health insurance business for 12 months after the relevant day calculated:
(a) applying the same premium increases as those assumed in calculating the premium income estimate; and
(b) excluding any possible changes in the unexpired risk liability or constructive obligation during that period.
21. Unexpired risk liability has the meaning given in the liability adequacy test in the relevant Australian Accounting Standards Board Standard 1023.
22. In calculating NM% the following must be taken into account:
(a) historical variability in net margins; and
(b) changes in the fund’s policy holder growth rate; and
(c) expansion into new complying health insurance product(s); and
(d) expansion into new markets.
23. The stressed investment income estimate (I) of the health benefits fund is the private health insurer’s estimate of its health benefits fund’s xth percentile investment income for the 12 months after the relevant day, taking into account all significant risks including:
(a) market risk; and
(b) credit risk; and
(c) the risk of incorrect asset valuation on the balance sheet.
24. The stressed other income estimate (O) of the health benefits fund is the private health insurer’s estimate of its health benefits fund’s xth percentile of its health related business and all other income, less associated expenses for the 12 months after the relevant day.
25. xth percentile means the percentile with which the:
(a) net margin for the health insurance business; and
(b) investment income; and
(c) health\-related business income and all other income, less associated expenses,
must be measured at, in order to achieve a second percentile profit margin, incorporating allowance for correlation between (a), (b) and (c) of this paragraph.