Replication (synthetic asset) transactions and mandatory convertible securities
this is listed under R1 & R2 - how do we determine where the charge/risk goes?
It looks like you're new here. If you want to get involved, click one of these buttons!
this is listed under R1 & R2 - how do we determine where the charge/risk goes?
Comments
It's explained on page 260-261.
these pages aren't all that straight forward. it appears that the charge is split between R1 & R2 based on what portion of the securities are for fixed income vs equity.
would you add anything else?
What part of the text are you trying to understand?
I think it is sort of just like for investments in non-insurance affiliates. If the investment is like a fixed-income investment then it should go in to R1, if it is more like equity then it goes into R2. If the synthetic asset was replicating a stock then it goes into R2. Likewise for R1. I am banking on them not asking a question that detailed on Synthetic assets.
I agree with the interpretation from the both of you.