Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p3
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 5583–8547

in each asset class are well diversified. Additional capital is therefore required if there are excessive concentrations of investments in individual assets or in exposures to single counterparties (or groups of related counterparties).
12.         The Asset Concentration Risk Charge is the amount by which the values of individual asset and credit exposures (or groups of related exposures) exceed certain limits. The limits, by type of asset exposure, are set out in Attachment A. Modifications to the limits that apply to specialist reinsurers are set out in paragraph 46.
13.         The prescribed limits are expressed as percentages of the value of assets of the statutory fund or general fund (VAF), as percentages of the capital base of the fund, or as fixed dollar limits.
14.         For the purpose of calculating the Asset Concentration Risk Charge in respect of reinsurance assets:
(a)          the value of the reinsurance asset must be its stressed value (determined in accordance with paragraph 17); and
(b)          the prescribed limits use the modified definition of VAF in paragraph 20.
15.         Where individual assets are exposed to common risks (e.g. strata titles in the same property, or exposures to a single creditor) their values must be aggregated and the Asset Concentration Risk Charge determined as the amount by which the aggregated value exceeds the relevant limit.

Determining VAF for asset concentration limits that apply to non-reinsurance assets
16.         For the purpose of determining the asset concentration limits for non-reinsurance assets, VAF is determined as:
(a)           the sum of the:
(i)            total assets of the fund reported in the life company's statutory accounts;
(ii)         value of adjusted reinsurance assets of the fund; and
(iii)       value of insurance policy receivables of the fund; less
(b)          the value of insurance and reinsurance contract assets of the fund reported in the life company's statutory accounts.
The value of adjusted reinsurance assets must be determined by calculating the adjusted policy liabilities gross of reinsurance, and deducting the corresponding net of reinsurance values. Where a life company has entered into deferred premiums, deposit backs or funds withheld arrangements, the value of adjusted reinsurance assets must be reduced by the value of assets held in the statutory fund under these arrangements (regardless of whether they meet the requirements for netting under paragraph 28).

Determining the stressed value of a reinsurance asset
17.         Reinsurance assets must be valued on a stressed basis for the purpose of determining their asset concentration limits. If a reinsurance asset would increase 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