6.2.3 Tier 2 financial instruments (other than structurally subordinated) ................................................ 40
6.2.4 Structurally subordinated Tier 2 financial instruments ................................................................... 41
6.2.5 Tier 2 Non-paid-up capital .............................................................................................................. 42
6.3 Capital elements other than financial instruments .................................................. 43
6.3.1 Tier 1 capital elements ................................................................................................................... 43
6.3.2 Tier 2 capital elements ................................................................................................................... 43
6.4 Capital adjustments and deductions ........................................................................ 44
6.4.1 Deductions from Tier 1 capital resources ...................................................................................... 44
6.4.2 Deductions from Tier 2 capital resources ...................................................................................... 45
6.4.3 Treatment of encumbered assets .................................................................................................. 45
6.4.4 Limit on non-controlling interests ................................................................................................... 45
6.5 Capital composition limits ......................................................................................... 46
Capital Requirement – The Standard Method ......................................................... 47
7.1 ICS Risks and Calculation Methods .......................................................................... 47
7.1.1 Risk mitigation techniques ............................................................................................................. 49
7.1.2 Geographic segmentation .............................................................................................................. 51
7.1.3 Management actions ...................................................................................................................... 52
7.2 Insurance risks ........................................................................................................... 53
7.2.1 Grouping of policies for life insurance risks ................................................................................... 53
7.2.2 Calculation of Life risk charges ...................................................................................................... 53
7.2.3 Calculation of Non-Life risk charges .............................................................................................. 60
7.2.4 Calculation of Catastrophe risk charges ........................................................................................ 72
7.3 Market Risks ............................................................................................................... 76
7.3.1 Calculation of the Market risk charge ............................................................................................. 76
7.3.2 Interest Rate risk ............................................................................................................................ 77
7.3.3 Non-Default Spread risk ................................................................................................................. 81
7.3.4 Equity risk ....................................................................................................................................... 82
7.3.5 Real Estate risk .............................................................................................................................. 85
7.3.6 Currency risk .................................................................................................................................. 86
7.3.7 Asset Concentration risk ................................................................................................................ 91
7.4 Credit risk.................................................................................................................... 93
7.4.1 Calculation of the Credit risk charge .............................................................................................. 93
7.4.2 Recognition of collateral, guarantees and credit derivatives ....................................................... 106
7.4.3 Use of external credit ratings ....................................................................................................... 112
7.5 Operational risk ........................................................................................................ 116
7.6 Aggregation / diversification of ICS risk charges .................................................. 117
7.7 Non-insurance risk charges .................................................................................... 118
Tax ............................................................................................................................ 121
8.1 General principles .................................................................................................... 121
8.2 Deferred tax resulting from the ICS Adjustment .................................................... 122
8.2.1 Utilisation assessment of DTAs recognised from the ICS Adjustment ........................................ 122
8.3 Tax effect on the ICS insurance capital requirement ............................................. 123
8.3.1 Component a: tax loss carry backs .............................................................................................. 124
8.3.2 Component b: post-stress future taxable income projections ...................................................... 124
8.3.3 Components c and d: Deferred taxes .......................................................................................... 124