Document ID: chunk:federal_register_of_legislation:F2023L00690:reg:7:p6
Version: federal_register_of_legislation:F2023L00690
Segment Type: reg
Provision Reference: reg 7 (pt 6/9)
Character Range: 42090–44924

the guarantor or issuer of the letter of credit to pay the insurer is specifically linked to performance of the reinsurance contract or contracts under which the reinsurance recoverables arise.

    9.             Except in the case of a Category E insurer, a guarantee or letter of credit provided to an insurer by its parent entity or other related entity is not eligible for the treatment provided for in paragraph 8 of this Attachment.

    10.         The collateral, guarantee or letter of credit referred to in paragraphs 6 to 8 of this Attachment must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the collateral, guarantee or letter of credit must be effective for a period of at least 24 months and must include a termination provision requiring the issuer to give the insurer 12 months written notice of the issuer's intention to terminate the collateral, guarantee or letter of credit.

Attachment C – Extended Licensed Entity
     1. In certain circumstances, a regulated institution may choose to hold assets in an SPV or other related entity, rather than on its own balance sheet. Where a regulated institution receives approval under paragraph 3 of this Attachment, the regulated institution will be able to determine its Asset Risk Charge based on the individual assets and liabilities of the related entity rather than simply on the regulated institution's direct exposure to that entity. This treats the activities of the regulated entity and the related entity as comprising an Extended Licensed Entity (ELE).

     2. The extent to which the risk of a regulated institution's exposure to a related entity is commensurate with the underlying holdings of that entity, depends on the extent to which the regulated institution has control over, or is integrated with the entity, as well as on the existence of material third party liabilities of the entity. The regulated institution must consider any potential complications under a scenario where underlying asset holdings must be liquidated during financial stress.

     3. Subject to the specific requirements set out in paragraph 4 of this Attachment, a regulated institution may apply to APRA to have one or more related entities approved as part of its ELE. Once approved, APRA will allow the regulated institution to 'look-through' the legal structures involved, and to 'consolidate' the balance sheet of the related entity with its own, for the purpose of determining the Asset Risk Charge. In effect, this allows the regulated institution to treat its own balance sheet and that of the approved related entity as a single entity for the purpose of calculating the Asset Risk Charge.

     4. In deciding whether to approve an entity