IPSB Equity Interest Rate Stress Tess

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Equity

For UK equities a fall of at least 10%,or if greater,the lower of:

A percentage fall in the value of equities which would produce an earnings yield of the FTSE Actuaries All Share Index equal to 4/3 of the long-term gilt yield;

and

25% less any percentage reduction between the current FTSE Actuaries

All Share Index and its average over the last 90 days Broad equivalent test for overseas equities.

Interest rate

The more onerous of a fall or rise in yields on all fixed interest securities by a percentage point amount equal to 20%of the long term gilt yield (or comparable foreign government bond yield for foreign bonds)

Real estate

A fall in real estate values of a minimum of 10%and a maximum of 20%;the required fall increasesis the ratio of the current value of an appropriate real estate index to the average value of that index over the three preceding financial years increases.

Credit risk

Rated investment grade corporate bonds Increase in corporate bond yield spreads over equivalent risk free rates from spreads prevailing at valuation date.Increase by differential between current average bond yield spread and specified maximum bond yield spread.Maximum bond yield spreads of 90-210 basis points above risk free rates,according to credit grade of bond assets. Rated,non-investment grade corporate bonds Increase in corporate bond yield spreads over equivalent risk free rates from spreads prevailing at valuation date.Increase by differential between current average bond yield spread and specified maximum bond yield spread.Maximum bond yield spreads of 525-900 basis points above risk free rates,according to credit grade of bond assets.

For the lowest rated bonds,not in default,a fixed capital charge of 10%of the market value of that bond. Non-rated corporate bonds Where the firm assesses the credituality to be equivalent to that of a rated bond,according to the rating and the method for corporate bonds. In other cases,a fixed capital charge of 10%of market value of bond. Commercial mortgages and other non-rated assets Where the firm assesses the credit quality to be equivalent to that of a rated bond,according to the rating and the method for corporate bonds. In other cases,a fixed capital charge of 10%of market value of the non-rated asset.

Reinsurance concentration

For material reinsurance arrangements, where the reinsurer is rated,according to the credit rating of the reinsurer, and the method for corporate bonds; -where the reinsurer is not rated,a fixed capital charge of 10%of value of the reinsurance asset.Intra-group einsurance is excluded,where both insurer and reinsurer are regulated in a designated state. Assets in default,that are specifically provisioned in accordance with accounting practice No credit stress required
v

Persistency

Termination rates in each year of projection of 50%of the termination rates assumed in realistic liabilities.

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Risk Capital Margin
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