PINS A3.2 Guidance

1. Asset risk is the risk of loss if:
(a) another party fails to perform its financial obligations to the insurer (including failing to perform them in a timely manner); or
(b) there is an adverse movement in the value of an insurer's invested assets that is not offset by a corresponding movement in the value of liabilities.
2. Asset risk includes an insurer failing to collect premiums due from customers or a reinsurer failing to fulfil its financial obligation to repay an insurer upon submission of a claim.
3. The purpose of the asset risk component is to require an insurer to hold capital against these risks and potential unexpected losses. The basic calculation for this component in rule A3.2.1 is modified by additional provisions that permit an insurer to take account of reduced credit risk (for example, where an asset is covered by guarantees or collateral). Invested assets that are linked to liabilities of investment-linked insurance contracts are exempted from the calculation, since there is a direct correlation between the values of the assets and the values of the liabilities to which they are linked.
Amended by QFCRA RM/2013-1 (as from 1st January 2015).