Among the other forms of funded credit protection are: deposits held with third party financial undertakings; pledged life insurance policies; and financial undertakings’ own instruments to be repurchased on request. Specific conditions apply to each of these.
Deposits held with third financial undertakings
Cash deposited, or cash-equivalent instruments, held with a third-party financial undertaking (other than under a safe-custody agreement) and pledged to the lending financial undertaking, may on certain conditions serve to reduce solvency requirements. If those conditions are met, the said deposits may, for the purpose of solvency requirements calculation, be treated as a guarantee given by the third-party financial undertaking. Such a guarantee is subject to the conditions applicable to guarantees within the CRM Framework.
Pledged life insurance policies
Life insurance policies pledged to the lending financial undertaking may, subject to conditions, serve to reduce solvency requirements. If the conditions are satisfied, the pledged life insurance policy may be treated as a guarantee for an amount up to the policy’s surrender value, given by the insurer that has written the policy.
Financial undertakings’ instruments to be repurchased on request
Instruments issued by a third-party financial undertaking that are to be repurchased on request by that financial undertaking, may subject to conditions serve to reduce solvency requirements. Provided the conditions are met, these instruments may be treated as a guarantee. The value of such a guarantee then equals:
- if the instrument is to be repurchased at the nominal value, its nominal value;
- if the instrument is to be repurchased at market value, the value of the instrument calculated according to the method applied to debt certificates issued by a non-rated financial undertaking.