Home   Browse contents   View updates   Search  
     Quick search
Go
   

Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Insurance Business Module (PIN) [VER15/01-18]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices
Financial Markets Tribunal
Archive

BackText onlyPrint

You need the Flash plugin.

Download Macromedia Flash Player



  • PIN A4.8 Concentration risk component

    • PIN A4.8 Guidance

      The purpose of the concentration risk component is to require an InsurerG to set aside capital to cover the sensitivity that it has to default or volatility in respect of assets and exposures to single counterparties or groupings of connected counterparties, or single properties. The additional capital requirement applies to investment exposures, including off-balance sheet exposures, and amounts outstanding under finite risk reinsurance contracts in respect of Long-Term InsuranceG . It is calculated on the basis of the Insurer'sG total exposure to the counterparty, grouping of connected counterparties or property, and operates on a sliding scale depending on the size of that exposure relative to the Insurer'sG Adjusted Capital ResourcesG . The total amount of the concentration risk component in respect of any asset is limited to 100% of the value of the asset, and certain assets that are left out of account in calculating an Insurer'sG Adjusted Capital ResourcesG are excluded from the calculation.


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A4.8.1

      An InsurerG must calculate a concentration risk component if the InsurerG has, as at the Solvency Reference DateG , an investment exposure to a single counterparty or (taken in the aggregate) to a grouping of two or more counterparties who are RelatedG to each other, or to a single property, that exceeds 10% of the Insurer'sG Adjusted Capital ResourcesG .


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A4.8.2

      For the purposes of the calculation referred to in PIN Rule A4.8.1:

      (a) 'investment exposure' means the aggregate value of all equity, bond or other investments in or in respect of the counterparty or grouping of RelatedG counterparties or property in question, together with off-balance sheet exposures to the same counterparty or grouping of RelatedG counterparties or property that the InsurerG has because it has issued guarantees, letters of credit or other credit substitutes (other than insurance contracts), or because it has entered into derivative contracts, and any amounts referred to in PIN Rule A4.12.6 in respect of that counterparty or grouping of RelatedG counterparties, but excluding any assets excluded from base capital by reason of any of the RulesG referred to in PIN Rule A4.4.7(2); and
      (b) 'AAA'-RatedG Governments and Government agencies are not counterparties.

      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A4.8.3

      An InsurerG must calculate its concentration risk component as the sum of the amounts obtained by applying to each investment exposure that exceeds 10% of the Insurer'sG Adjusted Capital ResourcesG the relevant formula set out in the following table, subject to PIN Rule A4.8.4.

      Exposure expressed as a percentage of adjusted capital resources Formula to determine concentration risk component
      (a) Over 10 up to 25 20% of the amount by which the investment exposure exceeds 10% of Adjusted Capital ResourcesG , up to a limit equivalent to 3% of Adjusted Capital ResourcesG .
      (b) Over 25 up to 50 3% of the amount of Adjusted Capital ResourcesG , plus 40% of the amount by which the investment exposure exceeds 25% of Adjusted Capital ResourcesG , up to a limit in total equivalent to 13% of Adjusted Capital ResourcesG .
      (c) Over 50 up to 75 13% of the amount of Adjusted Capital ResourcesG , plus 60% of the amount by which the investment exposure exceeds 50% of Adjusted Capital ResourcesG , up to a limit in total equivalent to 28% of Adjusted Capital ResourcesG .
      (d) Over 75 up to 100 28% of the amount of Adjusted Capital ResourcesG , plus 80% of the amount by which the investment exposure exceeds 75% of Adjusted Capital ResourcesG , up to a limit in total equivalent to 48% of Adjusted Capital ResourcesG .
      (e) Over 100 48% of the amount of Adjusted Capital ResourcesG , plus 100% of the amount by which the investment exposure exceeds 100% of Adjusted Capital ResourcesG .

      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]

    • PIN A4.8.4

      If the amount included in the concentration risk component in respect of an investment exposure, aggregated with the sum of the amounts included in the default risk component, investment volatility risk component and off-balance sheet asset risk component in respect of the assets and off-balance sheet exposures comprising that investment exposure, exceeds 100% of that investment exposure, the concentration risk component in respect of that investment exposure must be reduced so that the total of the four components in respect of that investment exposure is equal to 100% of that investment exposure.


      Derived from DFSA RM06/2004 (Made 16th September 2004). [VER1/09-04]