CTHRepealedLegislation
Life Insurance (prudential standard) determination No. 6 of 2012
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Life Insurance (prudential standard) determination No. 6 of 2012
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Turn the raw legal text into a practical explanation grounded in Life Insurance (prudential standard) determination No. 6 of 2012.
The impact of applying the asset concentration limits may be reduced where the fund holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of reducing risk.
Collateral held against an asset may be considered in place of the asset if this would reduce the asset concentration risk charge. Where the fair value of the collateral does not cover the full value of the asset, the collateral can only replace that part of the asset that is covered by the collateral.
Collateral can be recognised only to the extent that it takes the form of a registered charge, registered mortgage or other legally enforceable security interest in, or over, an ‘Eligible Collateral Item’. Eligible collateral items are cash, government securities, or debt obligations (i.e. loans, deposits, placements, interest rate securities and other receivables) where the counterparty has a counterparty grade of 1, 2 or 3. The Eligible Collateral Item must also be held for the period for which the asset is held.
Credit risk may be assessed using the counterparty grade of a third-party guarantor if the guarantee is explicit, unconditional, irrevocable and enforceable for the remaining term to maturity. The guarantor must have a counterparty grade (or for governments, a long-term foreign currency credit rating) of 1, 2 or 3. Guarantees provided by the life company’s parent or related entities are not eligible for this treatment.