PIN A8.4 PIN A8.4 Default risk component
PIN A8.4 Guidance
The purpose of the default risk component is to require an
Insurerto set aside capital to cover the risk that amounts receivable from counterparties will not be received. The basic calculation model for this component, as it applies to Insurersthat are not Protected Cell Companies, is set out in PIN section A4.4. The provisions in this section apply the relevant provisions of PIN section A4.4 to each Long-Term Insurance Fundthat an Insurermaintains.
Insurermust calculate the default risk component in respect of a Long-Term Insurance Fundas the sum of the amounts obtained by multiplying the value of each asset attributed to the fund with the relevant percentage, in accordance with the following tables and subject to the provisions of Rules PIN A8.4.2 and PIN A8.4.3:(a) assets that are Invested Assets: the table set out in PIN Rule A4.4.1(a); and(b) assets that are not Invested Assets: the table set out in PIN Rule A4.4.1(b).
The provisions of Rules PIN A4.4.2, PIN A4.4.3, PIN A.4.4.4, PIN A4.4.5 and PIN A4.4.6 must be applied, mutatis mutandis, to assets attributed to a
Long-Term Insurance Fundas though references in those Rulesto an Insurerwere instead references to a Long-Term Insurance Fund.
Notwithstanding anything else in this section:(a) the default risk component in respect of any asset that is subject to a fixed or floating charge, mortgage or other encumbrance must be 100% of the value of the asset to the extent of that charge, mortgage or encumbrance. In the case of such assets, the percentages set out in the tables referred to above must be applied only to the amount, if any, by which the value of the asset exceeds the amount of the charge, mortgage or encumbrance; and(b) no default risk component must be calculated in respect of assets excluded from
Adjusted Fund Capital Resourcesin accordance with Rules PIN A7.4.2(d), PIN A7.4.2(e), PIN A7.4.2(f), PIN A7.4.2(h), or PIN A7.4.2(i).