Document ID: chunk:federal_register_of_legislation:F2023L00733:front:0:p4
Version: federal_register_of_legislation:F2023L00733
Segment Type: other
Provision Reference: 
Character Range: 8041–10860

value. The risk charge component for each asset is the value reported in the private health insurer's statutory accounts[2] less the sum of the stressed value of the assets in each fund.

Off-balance sheet exposures
18.         A fund may be exposed to various asset risks through transactions or dealings other than those reflected on its balance sheet. Each of the stress tests must include any changes to a fund's on-balance sheet assets and liabilities that would result from application of the stresses to a fund's off-balance sheet exposures. A private health insurer must use effective exposure for any off-balance sheet exposures of a fund. Detailed information on the treatment of off-balance sheet exposures is set out in Attachment A.

Collateral and guarantees
19.         The impact of applying the asset risk stresses may be reduced where the private health insurer holds certain types of collateral against an asset, or where the asset has been guaranteed. Detailed information on the eligibility of collateral and guarantees is set out in Attachment B.

Treatment of specific asset classes
20.         Hybrid assets such as convertible notes must be split into their interest-bearing and equity/option exposures. A private health insurer must consider the changes in value of the two exposures separately for each of the asset risk stresses.
21.         For assets of a private health insurer held under a trust or in a controlled investment entity,[3] the private health insurer may calculate the Asset Risk Charge by looking-through to the assets and liabilities of the trust. Alternatively, the investment may be treated as an equity asset (a listed equity asset if the investment is listed, or an unlisted equity asset if the investment is unlisted). Look-through must be used if the trust or controlled investment entity is both unlisted and geared.[4]
22.         A security that is the subject of a repurchase or securities lending agreement must be treated as if it were still owned by the lender of the security. Any counterparty risk that arises from the transaction must be recognised in the default stress.
23.         Term deposits issued by an authorised deposit-taking institution (ADI) must be treated in the same way as a corporate bond issued by the ADI. If the ADI guarantees a minimum amount on early redemption, the minimum amount may be recognised as a floor to the stressed value of the asset in each of the real interest rates and expected inflation stresses. In the credit spreads stress the minimum amount may be recognised as a floor to the stressed value, but it must be reduced by multiplying it by (1 – default factor).

Derivatives
24.         Derivatives include forwards, futures, swaps, options and other similar contracts. Derivatives expose private health insurers to