In True Risk Transfer, what is the maximum share of the risk portfolio that the parent can hold?

In True Risk Transfer, what is the maximum share of the risk portfolio that the parent can hold?

• A. 100%
• B. No more than 30%
• C. 50%
• D. 0%

Answer: (B)

True Risk Transfer aims to move the majority of risk from the parent to an independent vehicle so the parent cannot steer outcomes through ownership. Keeping the parent’s retention limited to no more than thirty percent ensures the external vehicle bears the bulk of the risk, making the transfer genuine rather than just an accounting shift. If the parent held more than that, the arrangement could look like the parent still carries substantial risk, undermining the intended separation and potentially weakening regulatory or economic justification for the transfer. In practice, thirty percent is the threshold that keeps the external party as the primary risk bearer while the parent retains only a small, limited exposure.

True Risk Transfer aims to move the majority of risk from the parent to an independent vehicle so the parent cannot steer outcomes through ownership. Keeping the parent’s retention limited to no more than thirty percent ensures the external vehicle bears the bulk of the risk, making the transfer genuine rather than just an accounting shift. If the parent held more than that, the arrangement could look like the parent still carries substantial risk, undermining the intended separation and potentially weakening regulatory or economic justification for the transfer. In practice, thirty percent is the threshold that keeps the external party as the primary risk bearer while the parent retains only a small, limited exposure.