PIN A8.8 PIN A8.8 Concentration risk component
PIN A8.8 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 each Long-Term Insurance Fundthat an Insurermaintains.
Insureris required to calculate a concentration risk component in respect of a Long-Term Insurance Fundif that fund 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 Fund Capital Resources.
For the purposes of the calculation referred to in PIN Rule A8.8.1:(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 that fund has because the Insurerhas 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 fund capital in accordance with any of the Rulesreferred to in PIN Rule A8.4.3(b); and(b) 'AAA'- RatedGovernments and Government agencies are not counterparties.
Insurermust calculate its concentration risk component in respect of a Long-Term Insurance Fundas the sum of the amounts obtained by multiplying each investment exposure of that fund 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 Fund Capital Resources, and subject to PIN Rule A8.8.4
If the concentration risk component in respect of an investment exposure of a
Long-Term Insurance Fund, aggregated with the sum of the default risk component, investment volatility risk component and off-balance sheet asset risk component (so far as concerns that fund), 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 three components in respect of that investment exposure is equal to 100% of that investment exposure.