Document ID: chunk:federal_register_of_legislation:F2023L00690:reg:7:p2
Version: federal_register_of_legislation:F2023L00690
Segment Type: reg
Provision Reference: reg 7 (pt 2/2)
Character Range: 24341–25657

grade 1 must be treated as grade 1 (government) and assets with counterparty grade 2 must be treated as grade 1 (other).

Default stress
    65.         This stress applies to reinsurance assets, over-the-counter derivatives, unpaid premiums and all other credit or counterparty exposures that have not been affected by the credit spreads stress.
    66.         This stress includes the risk of counterparty default. A regulated institution must determine risk charges for the default stress for the risk of counterparty default on exposures that include (but are not limited to) reinsurance assets, unpaid premiums, futures and options, swaps, hedges, warrants, forward rate and repurchase agreements.
    67.         Where a regulated institution has unpaid premium, unclosed business, and non-reinsurance recoveries in respect of business ceded under a whole of account quota share arrangement, this stress may be applied to the net (rather than gross) of the quota share position.
    68.         The default factors are specified in Table 2. These factors apply to all assets affected by this stress, with the exception of certain types of assets specified in paragraphs 70 to 76.
Table 2: Default factors by counterparty grade
Counterparty grade  Default factor (%)
1 (government)      0
1 (other)           2