Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p9
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 21640–24441

exposure to the underlying counterparty.
38.         Given a provider of collateral may fail to or not be required to post additional collateral in response to falls in the value of the collateral or, for a collateralised reinsurance asset, increases in the value of the reinsurance asset, a material increase may occur in the Asset Concentration Risk Charge. This risk must be addressed in the life company's ICAAP.
39.         If a collateral arrangement includes requirements for the poster of collateral to post additional collateral in response to falls in the value of the collateral or increases in the value of the collateralised asset, the collateral agreement must address the following matters:
(a)          the method for determining the initial amount to be held under the collateral arrangement;
(b)          the method for adjusting the amount to be held as collateral and the timing of such adjustments;
(c)          in the case of a collateralised reinsurance asset, valuation of the asset must be made by the Appointed Actuary of the life company;
(d)          the monitoring and reporting of the value of the collateral and the value of the collateralised asset; and
(e)          the method for addressing any shortfall or excess between the value of the collateral and the value of the collateralised asset. In the case of a collateralised reinsurance asset, the Appointed Actuary of the life company must be responsible for determining adjustments to the required collateral amount.

Guarantees
40.         Where a fund possesses a non-reinsurance asset that has been explicitly, unconditionally and irrevocably guaranteed for its remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of grade 1, 2 or 3, it may treat the underlying asset as an exposure to the guarantor. This means that the asset is subject to the limits in Attachment A as an exposure to the guarantor, rather than an exposure to the underlying counterparty.
41.         Guarantees provided to a fund by the life company's own parent or a related entity are not eligible for the treatment provided for in paragraph 40.
42.         Where a statutory fund possesses a guarantee or letter of credit in respect of amounts payable by a reinsurer under a reinsurance contract (a reinsurance asset), it may treat the reinsurance asset as an exposure to the guarantor or the issuer of the letter of credit. This means that the asset is subject to the limits in Attachment A with respect to the guarantor or issuer of the letter of credit, rather than the underlying reinsurer. This paragraph applies only if:
(a)          the guarantor or issuer of the letter of credit is a bank (as defined in paragraph 25) with a counterparty grade of