1. Credit exposures can increase the risk profile of an Insurer and adversely affect financial viability. Credit exposure includes both on-balance sheet and off-balance sheet exposures (including guarantees, derivative financial instruments and performance related obligations) to single and Related counterparties.
2. An Insurer's risk management system in respect of credit quality risk will normally be expected to include at least the following policies and procedures:
a. limits (where relevant, at both an individual and consolidated level) for credit exposures to:
i. single counterparties and groupings of counterparties that are related to each other;
ii. entities to which the Insurer is Related;
iii. single industries; and
iv. single geographical locations;
b. processes to monitor and control credit exposures against pre-approved limits;
c. processes for identifying breaches of limits and for ensuring that breaches of limits are brought within the pre-approved limits within a set timeframe;
d. processes for reducing or cancelling limits to a particular counterparty where the counterparty is known to be experiencing problems;
e. processes for approving requests for temporary increases in limits;
f. processes to review credit exposures (at least annually but more frequently in cases where there is evidence of a deterioration in credit quality);
g. a management information system that is capable of aggregating exposures to any one counterparty (or group of Related counterparties), asset class, industry or region in a timely manner; and
h. a process for reporting to the Governing Body and senior management:
i. significant breaches of limits; and
ii. large exposures and other credit risk concentrations.
3. Further guidance in respect of credit quality risk in respect of reinsurance counterparties is contained at Rule A2.14.