Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p4
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 8313–11338

in value when one or more of the equity, property, credit spreads, currency or default stresses specified in LPS 114 are applied to the fund's other assets, the stressed value of the reinsurance asset must be determined as the greater of the amount determined in accordance with the method described in paragraph 18 (the insurance-stress method) or the amount determined in accordance with the method described in paragraph 19 (the combination-stress method). Otherwise the stressed value of the reinsurance asset must be determined in accordance with the insurance-stress method.
18.         The stressed value of a reinsurance asset under the insurance-stress method is the amount by which the stressed policy liabilities determined under Prudential Standard LPS 115 Insurance Risk Charge (LPS 115) would increase, if the stressed policy liabilities were determined gross of reinsurance. When determining the stressed policy liabilities gross of reinsurance, the stress margins and diversification factor used to derive the adjusted stress margins must be recalculated.
19.         The stressed value of a reinsurance asset under the combination-stress method is the amount by which net of reinsurance stressed policy liabilities determined under a combination asset and insurance stress would increase if they were to be determined gross of reinsurance. The combination stress must be determined by applying equity, property, credit spreads, currency and default stresses simultaneously with adjusted insurance stress margins:
(a)          The five asset stresses are as specified in LPS 114 (excluding the default stress that applies to the reinsurance asset) except that they are multiplied by the asset risk diversification factor (ARDF) and the aggregation diversification factor (ADF) that are used in calculating the combined stress scenario adjustment as specified in Attachment B of Prudential Standard LPS 110 Capital Adequacy.
(b)          The adjusted insurance stress margins are the relevant net or gross of reinsurance adjusted stress margins (as defined in LPS 115) multiplied by the ADF.
(c)          Life companies must not recalculate the ARDF based on the five asset stresses included for the combination stress.
(d)          Life companies must not recalculate the ADF to account for a different value for the aggregation benefit (either net or gross of reinsurance).
(e)          The direction of the currency stress is the same as used in calculating the combined stress scenario adjustment.
(f)           For the purposes of this paragraph, the ARDF and ADF must be calculated assuming paragraph 18(b) of LPS 114 does not apply to the reinsurance asset.

Determining VAF for asset concentration limits that apply to reinsurance assets
20.         For the purpose of determining the asset concentration limits for reinsurance assets, VAF is determined as in paragraph 16 but with the following modifications:
(a)          the stressed value of reinsurance assets is added to VAF in place of the value