PIN A6.8 PIN A6.8 Concentration risk component
PIN A6.8 Guidance
The purpose of the concentration risk component is to require an
Insurerto set aside capital to cover the sensitivity that it has to default or volatility in respect of assets and exposures to single counterparties or groupings of connected counterparties, or single properties. The provisions in this section apply the relevant provisions of PIN section A4.8 to the segments of a Protected Cell Company.
Insureris required to calculate a concentration risk component in respect of a segment if the segment has, as at the Solvency Reference Date, an investment exposure to a single counterparty or group of Relatedcounterparties, or to a single property, that exceeds 10% of the adjusted segmental capital resources.
For the purposes of the calculation referred to in PIN Rule A6.8.1:(a) 'investment exposure' means the aggregate value of all equity, bond or other investments in or in respect of the counterparty or group of
Relatedparties or property in question, together with off-balance sheet exposures to the same counterparty or group of Relatedcounterparties or property that the Insurerhas because it has issued guarantees, letters of credit or other credit substitutes (other than insurance contracts), or because it has entered into derivative contracts, but excluding any assets excluded from base cellular capital or base non-cellular capital by reason of any of the Rulesreferred to in PIN Rule A6.4.3(b);(b) 'adjusted segmental capital resources' in respect of a segment means Adjusted Cellular Capital Resourcesin respect of that segment (where the segment is a Cell) or the Insurer's Adjusted Non-Cellular Capital Resources(where the segment is not a Cell); and(c) 'AAA'- RatedGovernments and Government agencies are not counterparties.
Insurermust calculate its concentration risk component in respect of a segment as the sum of the amounts obtained by multiplying each investment exposure of that segment that exceeds 10% of the adjusted segmental capital resources, by the relevant factor percentage set out in the table set out in PIN Rule A4.8.3, reading that table as though all references to Adjusted Capital Resourceswere references to adjusted segmental capital resources, and subject to PIN Rule A6.8.4.
If the concentration risk component in respect of an investment exposure of a segment, aggregated with the sum of the default risk, investment volatility risk and off-balance sheet asset risk components (so far as concerns that segment), in respect of the assets and off-balance sheet exposures comprising that investment exposure, exceeds 100% of that investment exposure, the concentration risk component in respect of that investment exposure must be reduced so that the total of the four components in respect of that investment exposure is equal to 100% of that investment exposure.