Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) Text with EEA relevance

Credit quality step	Credit quality step	0	0	1	1	2	2	3	3	4	4	5 and 6	5 and 6
Duration	stress i	ai	bi	ai	bi	ai	bi	ai	bi	ai	bi	ai	bi
(duri)	stress i	ai	bi	ai	bi	ai	bi	ai	bi	ai	bi	ai	bi
up to 5	min [bi Image omitted; see official source duri; 1]	—	2,0 %	—	2,6 %	—	4,0 %	—	7,1 %	—	12,7 %	—	21,3 %
More than 5 and up to 10	min [ai + bi Image omitted; see official source (duri – 5); 1]	9,8 %	1,1 %	12,8 %	1,4 %	20,2 %	2,0 %	35,3 %	4,2 %	63,5 %	7,3 %	100,0 %	0,0 %
More than 10 and up to 15	min [ai + bi Image omitted; see official source (duri – 10); 1]	15,3 %	1,1 %	19,8 %	1,1 %	30,2 %	1,4 %	56,3 %	2,9 %	100,0 %	0,0 %	100,0 %	0,0 %
More than 15 and up to 20	min [ai + bi Image omitted; see official source (duri – 15); 1]	20,8 %	1,1 %	25,3 %	1,1 %	37,2 %	1,4 %	70,8 %	2,9 %	100,0 %	0,0 %	100,0 %	0,0 %
More than 20	min [ai + bi Image omitted; see official source (duri – 20); 1]	26,3 %	1,1 %	30,8 %	1,1 %	44,2 %	1,4 %	85,3 %	1,5 %	100,0 %	0,0 %	100,0 %	0,0 %

5. Senior STS securitisation positions which fulfil the criteria set out in Article 243 of Regulation (EU) No 575/2013 and for which no credit assessment by a nominated ECAI is available shall be assigned a risk factor stressi depending on the modified duration of the securitisation position i, as set out in the following table:

Duration	stress i	ai	bi
(duri)	stress i	ai	bi
up to 5	bi · duri	—	4,6 %
More than 5 and up to 10	ai + bi · (duri – 5)	23 %	2,5 %
More than 10 and up to 15	ai + bi · (duri – 10)	35,5 %	1,8 %
More than 15 and up to 20	ai + bi · (duri – 15)	44,5 %	0,5 %
More than 20	min[ai + bi · (duri – 20);1]	47 %	0,5 %

stressi = min(bi · duri;1)

where bi shall be assigned depending on the credit quality step of re-securitisation position i, as set out in the following table:

| Credit quality step | 0 | 1 | 2 | 3 | 4 | 5 | 6 |

| --- | --- | --- | --- | --- | --- | --- | --- | | bi | 33 % | 40 % | 51 % | 91 % | 100 % | 100 % | 100 % |

stressi = min(bi · duri;1)

where bi shall be assigned depending on the credit quality step of securitisation position i, as set out in the following table:

Credit quality step	0	1	2	3	4	5	6
bi	2,7  %	3,3  %	4,4  %	7,5  %	14,3  %	23,5  %	100,0  %

8a. Non-senior securitisation positions not covered by paragraphs 3 to 8, for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stressi equal to the following formula:

stressi = min(bi · duri;1)

where bi shall be assigned depending on the credit quality step of securitisation position i, as set out in the following table:

Credit quality step	0	1	2	3	4	5	6
bi	7,4  %	9,0  %	12,0  %	18,8  %	38,9  %	63,8  %	100,0  %

Article 178a

Spread risk on securitisation positions: transitional provisions

Article 179

Spread risk on credit derivatives

• (a) the loss in the basic own funds that would result from an instantaneous increase in absolute terms of the credit spread of the instruments underlying the credit derivatives;

• (b) the loss in the basic own funds that would result from an instantaneous relative decrease of the credit spread of the instruments underlying the credit derivatives by 75 %.

For the purposes of point (a), the instantaneous increase of the credit spread of the instruments underlying the credit derivatives for which a credit assessment by a nominated ECAI is available shall be calculated according to the following table.

Credit quality step	0	1	2	3	4	5	6
Instantaneous increase in spread (in percentage points)	1,3	1,5	2,6	4,5	8,4	16,20	16,20

Article 180

Specific exposures

• (a) the European Central Bank;

• (b) Member States' central government and central banks denominated and funded in the domestic currency of that central government and the central bank;

• (c) multilateral development banks referred to in paragraph 2 of Article 117 of Regulation (EU) No 575/2013;

• (d) international organisations referred to in Article 118 of Regulation (EU) No 575/2013;

Exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d), where the guarantee meets the requirements set out in Article 215, shall also be assigned a risk factor stressi of 0 %.

Where an exposure takes the form of an individual bond or loan that is partly, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d), where the guarantee meets the requirements set out in Article 215 and provides a first-loss guarantee of at least 5 % of the nominal value of the exposure, the part of the value of the exposure that is covered by the guarantee shall also be assigned a risk factor stressi of 0 %.

Where an exposure takes the form of a pool of bonds and loans that is partly, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d) and where the guarantee meets the requirements set out in Article 215 and provides a first-loss guarantee of at least 5 % of the nominal total exposure, for the calculating spread risk, the insurance and reinsurance undertaking may assign a risk factor stressi of 0 % to an amount of bonds and loans within the pool the cumulative value of which is equal to the total value of the guarantee.

For the purposes of the third and fourth subparagraphs, the requirements set out in Article 215 point (f) shall be considered to be satisfied where the partial guarantee proportionally covers all types of regular payments the obligor is expected to make in respect of the claim.

For the purposes of point (b) of the first subparagraph, exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by regional governments and local authorities listed in Article 1 of Commission Implementing Regulation (EU) 2015/2011 ([^E0023]), where the guarantee meets the requirements set out in Article 215 of this Regulation, shall be treated as exposures to the central government.

Credit quality step	Credit quality step	0 and 1	0 and 1	2	2	3	3	4	4	5 and 6	5 and 6
Duration (duri)	stressi	ai	bi	ai	bi	ai	bi	ai	bi	ai	bi
up to 5	Image omitted; see official source	—	0,0 %	—	1,1 %	—	1,4 %	—	2,5 %	—	4,5 %
More than 5 and up to 10	Image omitted; see official source	0,0 %	0,0 %	5,5 %	0,6 %	7,0 %	0,7 %	12,5 %	1,5 %	22,5 %	2,5 %
More than 10 and up to 15	Image omitted; see official source	0,0 %	0,0 %	8,4 %	0,5 %	10,5 %	0,5 %	20,0 %	1,0 %	35,0 %	1,8 %
More than 15 and up to 20	Image omitted; see official source	0,0 %	0,0 %	10,9 %	0,5 %	13,0 %	0,5 %	25,0 %	1,0 %	44,0 %	0,5 %
More than 20	Image omitted; see official source	0,0 %	0,0 %	13,4 %	0,5 %	15,5 %	0,5 %	30,0 %	0,5 %	46,5 %	0,5 %

3a. Exposures in the form of bonds and loans to Member States' regional governments and local authorities not listed in Article 1 of Implementing Regulation (EU) 2015/2011 () shall be assigned a risk factor stressi* from the table in paragraph 3 corresponding to credit quality step 2.

3b. Exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by a Member State's regional government or local authority that are not listed in Article 1 of Implementing Regulation (EU) 2015/2011, where the guarantee meets the requirements set out in Article 215 of this Regulation, shall be assigned a risk factor stressi from the table in paragraph 3 corresponding to credit quality step 2.

Solvency ratio	196 %	175 %	122 %	95 %	75 %	75 %
Credit quality step	1	2	3	4	5	6

Where the solvency ratio falls in between the solvency ratios set out in the table above, the value of stressi shall be linearly interpolated from the closest values of stressi corresponding to the closest solvency ratios set out in the table above. Where the solvency ratio is lower than 75 %, stressi shall be equal to the factor corresponding to the credit quality steps 5 and 6. Where the solvency ratio is higher than 196 %, stressi shall be the same as the factor corresponding to the credit quality step 1.

For the purposes of this paragraph, ‘solvency ratio’ denotes the ratio of the eligible amount of own funds to cover the Solvency Capital Requirement and the Solvency Capital Requirement, using the latest available values.

Duration (duri)	risk factor stressi
up to 5	7,5 %. duri
More than 5 and up to 10	37,50 % + 4,20 %. (duri – 5)
More than 10 and up to 15	58,50 % + 0,50 %. (duri – 10)
More than 15 and up to 20	61 % + 0,50 %. (duri – 15)
More than 20	Image omitted; see official source

10a. Notwithstanding paragraph 10, securitisations issued before 1 January 2019 that qualify as type 1 securitisations in accordance with paragraph 10 in the version in force on 31 December 2018 shall be assigned a risk factor stressi of 0 % even where those securitisations are not STS securitisations which fulfil the requirements set out in Article 243 of Regulation (EU) No 575/2013.

11. Exposures in the form of bonds and loans that fulfil the criteria set out in paragraph 12 shall be assigned a risk factor stressi depending on the credit quality step and the duration of the exposure according to the following table:

Credit quality step	Credit quality step	0	0	1	1	2	2	3	3
Duration (duri)	stressi	ai	bi	ai	bi	ai	bi	ai	bi
up to 5	bi · duri	—	0,64 %	—	0,78 %	—	1,0 %	—	1,67 %
More than 5 and up to 10	ai + bi · (duri – 5)	3,2 %	0,36 %	3,9 %	0,43 %	5,0 %	0,5 %	8,35 %	1,0 %
More than 10 and up to 15	ai + bi · (duri – 10)	5,0 %	0,36 %	6,05 %	0,36 %	7,5 %	0,36 %	13,35 %	0,67 %
More than 15 and up to 20	ai + bi · (duri – 15)	6,8 %	0,36 %	7,85 %	0,36 %	9,3 %	0,36 %	16,7 %	0,67 %
More than 20	min[ai + bi · (duri – 20);1]	8,6 %	0,36 %	9,65 %	0,36 %	11,1 %	0,36 %	20,05 %	0,36 %

• (a) the exposure relates to a qualifying infrastructure investment that meets the criteria set out in Article 164a;

• (b) the exposure is not an asset that fulfils the following conditions:
• — it is assigned to a matching adjustment portfolio in accordance with Article 77b(2) of Directive 2009/138/EC,
• — it has been assigned a credit quality step between 0 and 2;

• (c) a credit assessment by a nominated ECAI is available for the exposure;

- (d) the exposure has been assigned a credit quality step between 0 and 3.

13. Exposures in the form of bonds and loans that meet the criteria set out in paragraph 12(a) and (b), but do not meet the criteria set out in paragraph 12(c), shall be assigned a risk factor stressi equivalent to credit quality step 3 and the duration of the exposure in accordance with the table set out in paragraph 11.

Credit quality step	Credit quality step	0	0	1	1	2	2	3	3
Duration (duri)	stress i	ai	bi	ai	bi	ai	bi	ai	bi
up to 5	bi · duri	—	0,68 %	—	0,83 %	—	1,05 %	—	1,88 %
More than 5 and up to 10	ai + bi · (duri – 5)	3,38 %	0,38 %	4,13 %	0,45 %	5,25 %	0,53 %	9,38 %	1,13 %
More than 10 and up to 15	ai + bi · (duri – 10)	5,25 %	0,38 %	6,38 %	0,38 %	7,88 %	0,38 %	15,0 %	0,75 %
More than 15 and up to 20	ai + bi · (duri – 15)	7,13 %	0,38 %	8,25 %	0,38 %	9,75 %	0,38 %	18,75 %	0,75 %
More than 20	min[ai + bi · (duri – 20);1]	9,0 %	0,38 %	10,13 %	0,38 %	11,63 %	0,38 %	22,50 %	0,38 %

• (a) the exposure relates to a qualifying infrastructure corporate investment that meets the criteria set out in Article 164b;

• (b) the exposure is not an asset that fulfils the following conditions:
• — it is assigned to a matching adjustment portfolio in accordance with Article 77b(2) of Directive 2009/138/EC,
• — it has been assigned a credit quality step between 0 and 2;

• (c) a credit assessment by a nominated ECAI is available for the infrastructure entity.

• (d) the exposure has been assigned a credit quality step between 0 and 3.

Article 181

Application of the spread risk scenarios to matching adjustment portfolios

Where insurance undertakings apply the matching adjustment referred to in Article 77b of Directive 2009/138/EC, they shall carry out the scenario based calculation for spread risk as follows:

• (a) the assets in the assigned portfolio shall be subject to the instantaneous decrease in value for spread risk set out in Articles 176, 178 and 180 of this Regulation;

• (b) the technical provisions shall be recalculated to take into account the impact on the amount of the matching adjustment of the instantaneous decrease in value of the assigned portfolio of assets. In particular, the fundamental spread shall increase, by an absolute amount that is calculated as the product of the following:
• (i) the absolute increase in spread that, multiplied by the modified duration of the relevant asset, would result in the relevant risk factor stressi, referred to in Articles 176, 178 and 180 of this Regulation;
• (ii) a reduction factor, depending on the credit quality as set out in the following table: Credit quality step 0 1 2 3 4 5 6 Reduction factor 45 % 50 % 60 % 75 % 100 % 100 % 100 %

For assets in the assigned portfolio for which no credit assessment by a nominated ECAI is available, and for qualifying infrastructure assets and for qualifying infrastructure corporate assets that have been assigned credit quality step 3, the reduction factor shall be 100 %.

Subsection 6 Market risk concentrations sub-module

Article 182

Single name exposure

4. The weighted average credit quality step on a single name exposure shall be equal to the rounded-up average of the credit quality steps of all exposures to all counterparties that belong to the single name exposure, weighted by the value of each exposure.

• (a) those exposures are other than those referred to in Article 187(3), point (b);

• (b) those exposures are denominated and funded in the domestic currency of that central government and central bank;

• (c) the credit quality step for such exposures is two or larger.

5a. Exposures to Member States’ regional governments and local authorities not listed in Article 1 of Implementing Regulation (EU) 2015/2011 shall be assigned credit quality step 1.

5b. Exposures that are fully, unconditionally, and irrevocably guaranteed by a Member State’s regional government or local authority that is not listed in Article 1 of Implementing Regulation (EU) 2015/2011, where the guarantee meets the requirements set out in Article 215 of this Regulation, shall be assigned to credit quality step 1.

Solvency Ratio	196 %	175 %	122 %	100 %	95 %
Credit quality step	1	2	3	3,82	5

Where the solvency ratio falls in between the solvency ratios set out in the table above, the credit quality step shall be linearly interpolated from the closest credit quality steps corresponding to the closest solvency ratios set out in the table above. Where the solvency ratio is lower than 95 %, the credit quality step shall be 5. Where the solvency ratio is higher than 196 %, the credit quality step shall be 1.

For the purposes of this paragraph, ‘solvency ratio’ denotes the ratio of the eligible amount of own funds to cover the Solvency Capital Requirement and the Solvency Capital Requirement, using the latest available values.

8. Paragraphs 6 and 7 of this Article shall only apply as of the first date of public disclosure, by the undertaking corresponding to the exposure, of the report on its solvency and financial condition referred to in Article 51 of Directive 2009/138/EC. Before that date, the exposures shall be assigned to credit quality step 3,82.

Article 183

Calculation of the capital requirement for market risk concentration

Image omitted; see official source

where:

• (a) the sum covers all single name exposures i;

• (b) Conci denotes the capital requirement for market risk concentration on a single name exposure i.

Image omitted; see official source

where:

• (a) XSi is the excess exposure referred to in Article 184;

• (b) gi is the risk factor for market risk concentration referred to in Articles 186 and 187;

Article 184

Excess exposure

Image omitted; see official source

where:

- (a) Ei denotes the exposure at default to single name exposure i that is included in the calculation base of the market risk concentrations sub-module;

• (b) Assets denotes the calculation base of the market risk concentrations sub-module;

• (c) CTi denotes the relative excess exposure threshold referred to in Article 185.

- (a) assets held in respect of life insurance contracts where the investment risk is fully borne by the policy holders;

• (b) exposures to a counterparty which belongs to the same group as the insurance or reinsurance undertaking, provided that all of the following conditions are met:
• (i) the counterparty is an insurance or reinsurance undertaking, an insurance holding company, a mixed financial holding company or an ancillary services undertaking;
• (ii) the counterparty is fully consolidated in accordance with Article 335(1)(a);
• (iii) the counterparty is subject to the same risk evaluation, measurement and control procedures as the insurance or reinsurance undertaking;
• (iv) the counterparty is established in the Union;
• (v) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the insurance or reinsurance undertaking;

• (c) the value of the participations as referred to in Article 92(2) of Directive 2009/138/EC in financial and credit institutions that is deducted from own funds pursuant to Article 68 of this Regulation;

• (d) exposures included in the scope of the counterparty default risk module;

• (e) deferred tax assets;

• (f) intangible assets;

• (g) the value of an equity investment, where such value is negative.

Article 185

Relative excess exposure thresholds

Each single name exposure i shall be assigned, in accordance with the following table, a relative excess exposure threshold depending on the weighted average credit quality step of the single name exposure i, calculated in accordance with Article 182(4).

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Relative excess exposure threshold CTi	3 %	3 %	3 %	1,5 %	1,5 %	1,5 %	1,5 %

Article 186

Risk factor for market risk concentration

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Risk factor gi	12 %	12 %	21 %	27 %	73 %	73 %	73 %

Article 187

Specific exposures

1. Exposures in the form of bonds within the meaning of Article 3, point (1), of Directive (EU) 2019/2162 (covered bonds) shall be assigned a relative excess exposure threshold CTi of 15 %, provided that the corresponding exposures in the form of covered bonds have been assigned to credit quality step 0 or 1. Exposures in the form of covered bonds shall be considered as single name exposures, regardless of other exposures to the same counterparty as the issuer of the covered bonds, which constitute a distinct single name exposure.

• (a) the European Central Bank;

• (b) Member States' central government and central banks denominated and funded in the domestic currency of that central government and central bank;

• (c) multilateral development banks referred to in Article 117(2) of Regulation (EU) No 575/2013;

• (d) international organisations referred to in Article 118 of Regulation (EU) No 575/2013.

Exposures that are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d), where the guarantee meets the requirements set out in Article 215, shall also be assigned a risk factor gi for market risk concentration of 0 %.

For the purposes of point (b), exposures that are fully, unconditionally and irrevocably guaranteed by regional governments and local authorities listed in Article 1 of Implementing Regulation (EU) 2015/2011, where the guarantee meets the requirements set out in Article 215 of this Regulation, shall be treated as exposures to the central government.

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Risk factor gi	0 %	0 %	12 %	21 %	27 %	73 %	73 %

• (a) the full value of the exposure is covered by a government guarantee scheme in the Union;

• (b) the guarantee covers the insurance or reinsurance undertaking without any restriction;

- (c) there is no double counting of such guarantee in the calculation of the Solvency Capital Requirement.

Subsection 7 Currency risk sub-module

Article 188

For the purposes of this Article, foreign currencies shall be currencies other than the currency used for the preparation of the insurance or reinsurance undertaking's financial statements (‘the local currency’).

• (a) the capital requirement for the risk of an increase in value of the foreign currency against the local currency;

• (b) the capital requirement for the risk of a decrease in value of the foreign currency against the local currency.

• (a) the pegging arrangement shall ensure that the relative changes in the exchange rate over a one-year period do not exceed the relative adjustments to the 25 % factor, in the event of extreme market events, that correspond to the confidence level set out in Article 101(3) of Directive 2009/138/EC;

• (b) one of the following criteria is complied with:
• (i) participation of the currency in the European Exchange Rate Mechanism (ERM II);
• (ii) existence of a decision from the Council which recognises pegging arrangements between this currency and the euro;
• (iii) establishment of the pegging arrangement by the law of country establishing the country's currency.

For the purposes of point (a), the financial resources of the parties that guarantee the pegging shall be taken into account.

SECTION 6 Counterparty default risk module

Subsection 1 General provisions

Article 189

Scope

Image omitted; see official source

where:

• (a) SCRdef,1 denotes the capital requirement for counterparty default risk on type 1 exposures as set out in paragraph 2;

• (b) SCRdef,2 denotes the capital requirement for counterparty default risk on type 2 exposures as set out in paragraph 3.

• (a) Risk-mitigation contracts including reinsurance arrangements, special purpose vehicles and insurance securitisations;

• (b) Cash at bank as defined in Article 6 item F of Council Directive 91/674/EEC ([^E0024]);

• (c) Deposits with ceding undertakings, where the number of single name exposures does not exceed 15;

• (d) Commitments received by an insurance or reinsurance undertaking which have been called up but are unpaid, where the number of single name exposures does not exceed 15, including called up but unpaid ordinary share capital and preference shares, called up but unpaid legally binding commitments to subscribe and pay for subordinated liabilities, called up but unpaid initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings, called up but unpaid guarantees, called up but unpaid letters of credit, called up but unpaid claims which mutual or mutual-type associations may have against their members by way of a call for supplementary contributions;

• (e) Legally binding commitments which the undertaking has provided or arranged and which may create payment obligations depending on the credit standing or default on a counterparty including guarantees, letters of credit, letters of comfort which the undertaking has provided;

• (f) derivatives other than credit derivatives covered in the spread risk sub-module;

• (g) repurchase transactions, reverse repurchase transactions, and securities lending or borrowing transactions;

• (h) pre-funded contributions and unfunded contributions to the default fund of a CCP, within the meaning of Article 4(1), point (90) and Article 300, point (10) of Regulation (EU) No 575/2013 respectively, where the CCP is a qualifying central counterparty.

3. Type 2 exposures shall consist of all credit exposures which are not covered in the spread risk sub-module and which are not type 1 exposures, including the following:

• (a) Receivables from intermediaries;

• (b) Policyholder debtors;

• (c) mortgage loans which meet the requirements in Article 191(2) to (13);

- (ca) defaulted loans and forborne loans;

• (d) Deposits with ceding undertakings, where the number of single name exposures exceeds 15;

• (e) Commitments received by an insurance or reinsurance undertaking which have been called up but are unpaid as referred to in paragraph 2(d), where the number of single name exposures exceeds 15.

• (a) the credit risk transferred by a credit derivative;

• (b) the credit risk on debt issuance by special purpose vehicles, whether as defined in Article 13(26) of Directive 2009/138/EC or not;

• (c) the underwriting risk of credit and suretyship insurance or reinsurance as referred to in lines of business 9, 21 and 28 of Annex I of this Regulation;

• (d) the credit risk on mortgage loans which do not meet the requirements in Article 191(2) to (9);

• (e) the credit risk on assets posted as collateral to a CCP or a clearing member that are bankruptcy remote.

Article 190

Single name exposures

Article 191

Mortgage loans

- (a) the risk of the borrower does not materially depend upon the performance of the underlying property, but on the underlying capacity of the borrower to repay the debt from other sources, and as a consequence, the repayment of the facility does not materially depend on any cash flow generated by the underlying property serving as collateral. For those other sources, the insurance or reinsurance undertaking shall determine maximum loan-to-income ratio as part of its lending policy and obtain suitable evidence of the relevant income when granting the loan; or

• (b) the exposure complies with Article 124(2), point(a)(ii), and Article 124(3), points (a), (b) and (d) of Regulation (EU) No 575/2013.

• (a) a mortgage or charge is enforceable in all jurisdictions which are relevant at the time of the conclusion of the credit agreement and shall be properly filed on a timely basis;

• (b) all legal requirements for establishing the pledge have been fulfilled;

• (c) the protection agreement and the legal process underpinning it enable the insurance or reinsurance undertaking to realise the value of the protection within a reasonable timeframe.

• (a) the insurance or reinsurance undertaking monitors the value of the property on a frequent basis and at a minimum once every three years. The insurance or reinsurance undertaking carries out more frequent monitoring where the market is subject to significant changes in conditions;

• (b) the property valuation is reviewed when information available to the insurance or reinsurance undertaking indicates that the value of the property may have declined materially relative to general market prices and that review is external and independent and carried out by a valuer who possesses the necessary qualifications, ability and experience to execute a valuation and who is independent from the credit decision process.

• (a) losses stemming from loans that has been classified as type 2 exposures according with Article 189(3) in any given year;

• (b) overall losses in any given year.

Article 192

Loss-given-default

Where insurance and reinsurance undertakings have concluded contractual netting agreements covering several derivatives that represent credit exposure to the same counterparty, they may calculate the loss-given-default on those derivatives, as set out in paragraphs 3 to 3c, on the basis of the combined economic effect of all of those derivatives that are covered by the same contractual netting agreement, provided that Articles 209 and 210 are complied with in relation to the netting.

Image omitted; see official source

where:

• (a) Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement or insurance securitisation and the corresponding debtors;

• (b) RMre denotes the risk mitigating effect on underwriting risk of the reinsurance arrangement or securitisation;

• (c) Collateral denotes the risk-adjusted value of collateral in relation to the reinsurance arrangement or securitisation;

• (d) F denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in case of any credit event related to the counterparty.

Where the reinsurance arrangement is with an insurance or reinsurance undertaking or a third country insurance or reinsurance undertaking and 60% or more of that counterparty’s assets are subject to collateral arrangements, the loss-given-default shall be equal to the following:

LGD = max[90 % Image omitted; see official source (Recoverables + 50 % * RMre) – F’’’ . Collateral, 0]

where F’’’ denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in the case of a credit event related to the counterparty.

LGD = max(18 % · (Derivative + 50 % · RM fin) – 50 % · F′ · Value; 0)

where:

• (a) Derivative denotes the value of the derivative determined in accordance with Article 75 of Directive 2009/138/EC;

• (b) RMfin denotes the risk-mitigating effect on market risk of the derivative;

• (c) Value denotes the value of the assets held as collateral determined in accordance with Article 75 of Directive 2009/138/EC;

• (d) F′ denotes a factor to take into account the economic effect of the collateral arrangement in relation to the derivative in case of a credit event related to the counterparty.

3a. Notwithstanding paragraph 3, the loss-given-default on a derivative falling within Article 192a(2) shall be equal to the following:

LGD = max(16 % · (Derivative + 50 % · RM fin) – 50 % · F′′ · Value; 0)

where:

• (a) Derivative denotes the value of the derivative in accordance with Article 75 of Directive 2009/138/EC;

• (b) RMfin denotes the risk-mitigating effect on market risk of the derivative;

• (c) Value denotes the value of the assets held as collateral in accordance with Article 75 of Directive 2009/138/EC;

• (d) F′′ denotes a factor to take into account the economic effect of the collateral arrangement in relation to the derivative in case of a credit event related to the counterparty.

3b. The loss-given-default on derivatives other than those referred to in paragraphs 3 and 3a shall be equal to the following, provided that the derivative contract meets the requirements of Article 11 of Regulation (EU) 648/2012:

LGD = max(90 % · (Derivative + 50 % · RM fin) – 50 % · F′′′ · Value; 0)

where:

• (a) Derivative denotes the value of the derivative determined in accordance with Article 75 of Directive 2009/138/EC;

• (b) RMfin denotes the risk-mitigating effect on market risk of the derivative;

• (c) Value denotes the value of the assets held as collateral determined in accordance with Article 75 of Directive 2009/138/EC;

• (d) F′′′ denotes a factor to take into account the economic effect of the collateral arrangement in relation to the derivative in case of a credit event related to the counterparty.

3c. The loss-given-default on derivatives not covered by paragraphs 3, 3a and 3b shall be equal to the following:

LGD = max(90 % · (Derivative + RM fin) – F′′′ · Collateral; 0)

where:

• (a) Derivative denotes the value of the derivative determined in accordance with Article 75 of Directive 2009/138/EC;

• (b) RMfin denotes risk-mitigating effect on market risk of the derivative;

• (c) Collateral denotes the risk-adjusted value of collateral in relation to the derivative;

• (d) F′′′ denotes a factor to take into account the economic effect of the collateral arrangement in relation to the derivative in case of a credit event related to the counterparty.

3d. Where the loss-given-default on derivatives is to be calculated on the basis referred to in the second subparagraph of paragraph 1, the following rules shall apply for the purposes of paragraphs 3 to 3c:

• (a) the value of the derivative shall be the sum of the values of the derivatives covered by the contractual netting arrangement;

• (b) the risk-mitigating effect shall be determined at the level of the combination of derivatives covered by the contractual netting arrangement;

• (c) the risk-adjusted value of collateral shall be determined at the level of the combination of derivatives covered by the contractual netting arrangement.

3e. The loss-given-default on repurchase transactions, reverse repurchase transactions, or securities lending or borrowing transactions, shall be equal to the following:

LGD = max (Exposure – Collateral; 0)

where:

• (a) Exposure denotes the value of securities or cash lent to the counterparty under the transaction, determined in accordance with Article 75 of Directive 2009/138/EC;

• (b) Collateral denotes the risk-adjusted value of securities or cash received from the counterparty.

3f. Where insurance and reinsurance undertakings have concluded contractual netting agreements covering several repurchase transactions, or reverse repurchase agreements or securities lending or borrowing transactions that represent credit exposure to the same counterparty, they may calculate the loss-given-default on those repurchase transactions or reverse repurchase transactions or securities lending or borrowing transactions, as set out in paragraph 3e, on the basis of the combined economic effect of all of those repurchase transactions or reverse repurchase transactions or securities lending or borrowing transactions that are covered by the same contractual netting agreement, provided that Articles 209 and 210 are complied with in relation to the netting.

Where the loss-given default on repurchase transactions, or reverse repurchase transactions, or securities lending or borrowing transactions is to be calculated on the bases referred to in the first subparagraph, the following rules shall apply for the purposes of paragraph 3e:

• (a) the value of the securities or cash lent to the counterparty shall be the total value for solvency purposes of securities or cash lent to the counterparty for the transactions that covered by the contractual netting arrangement;

• (b) the risk-adjusted value of securities or cash received from the counterparty shall be determined at the level of the combination of repurchase transactions, or reverse repurchase transactions, or securities lending or borrowing transactions, covered by the contractual netting arrangement.

LGD = max[Loan – (80 % × Mortgage + Guarantee); 5 % × max[0; (Loan – Guarantee)]]

where:

• (a) Loan denotes the value of the mortgage loan determined in accordance with Article 75 of Directive 2009/138/EC;

• (b) Mortgage denotes the risk-adjusted value of the mortgage;

- (c) Guarantee denotes the amount that the guarantor would be required to pay to the insurance or reinsurance undertaking if the obligor of the mortgage loan were to default at a time when the value of the property held as mortgage were equal to 80 % of the risk-adjusted value of the mortgage.

For the purposes of point (c), a guarantee shall only be recognised where both of the following conditions are met:

• (a) it is provided by a counterparty as referred to in Article 180(2), first subparagraph, points (a) to (d), or by a counterparty which is itself fully guaranteed by one of the counterparties referred to in the first subparagraph, points (a) to (d), of that Article;

• (b) it complies with the requirements set out in Articles 209 and 210, and Article 215, points (a) to (e).

Where the guarantee is provided by a counterparty which is fully guaranteed by one or more of the counterparties referred to in Article 180(2), first subparagraph, points (a) to (d), the requirements set out in Article 215, point (c)(iii) and point (d) shall be considered to be satisfied where the insurance or reinsurance undertaking has the right to obtain in a timely manner a provisional payment by the first guarantor that meets both of the following conditions:

• (a) it represents a robust estimate of the amount of the loss, including losses resulting from the non-payment of interest and other types of payment which the borrower is obliged to make, that the lending insurance or reinsurance undertaking is likely to incur;

• (b) it is proportional to the coverage of the guarantee.

4a. The loss-given-default on a defaulted loan or a forborne loan shall be equal to the following:

LGD = max (Loan – Recoverables; 36 % × Loan)

where:

- (a) Loan denotes the value of the mortgage loan determined in accordance with Article 75 of Directive 2009/138/EC;

• (b) Recoverables denotes the present value of the debt recoveries calculated in accordance with the guidelines adopted pursuant to Article 181(4) of Regulation (EU) No 575/2013.

6. The loss-given-default on cash at bank as defined in Article 6 item F of Council Directive 91/674/EEC, of a deposit with a ceding undertaking, of an item listed in Article 189(2)(d) or Article 189(3)(e) of this Regulation, or of a receivable from an intermediary or policyholder debtor, as well as any other exposure not listed elsewhere in this Article shall be equal to its value in accordance with Article 75 of Directive 2009/138/EC.

Article 192a

Exposure to clearing members

• (a) the derivative is a CCP-related transaction in which the insurance or reinsurance undertaking is the client;

• (b) the positions and assets of the insurance or reinsurance undertaking related to that transaction are distinguished and segregated, at the level of both the clearing member and the CCP, from the positions and assets of both the clearing member and the other clients of that clearing member and as a result of that distinction and segregation those positions and assets are bankruptcy remote in the event of the default or insolvency of the clearing member or one or more of its other clients;

• (c) the laws, regulations, rules and contractual arrangements applicable to or binding the insurance or reinsurance undertaking or the CCP facilitate the transfer of the client's positions relating to that contract and transaction and of the corresponding collateral to another clearing member within the applicable margin period of risk in the event of default or insolvency of the original clearing member, in which case, the client’s positions and the collateral shall be transferred at market value, unless the client requests to close out the position at market value;

• (d) the insurance and reinsurance undertaking has conducted a sufficiently thorough legal review, which it has kept up to date, that substantiates that the arrangements that ensure that the condition set out in point (c) is met are legal, valid, binding and enforceable under the relevant laws of the relevant jurisdiction or jurisdictions;

• (e) the CCP is a qualifying central counterparty.

When assessing their compliance with the condition set out in the first subparagraph, point (c), insurance or reinsurance undertakings may take into account any clear precedents of transfers of client positions and of corresponding collateral at a CCP, and any industry intent to continue with that practice.

Article 192b

Direct exposure to a qualifying central counterparty

Notwithstanding Article 192a, for the purposes of Article 192(3), a derivative financing transaction shall fall under the scope of this Article where the insurance or reinsurance undertaking acts as a clearing member of a CCP for its own purposes on the derivative financing transaction, and the CCP is a qualifying central counterparty.

Article 193

Loss-given-default for pool exposures of type A

For pool exposures of type A which the undertaking considers as separate single name exposures in accordance with Article 190(2), where members are each liable up to the full amount of the obligation covered by the pooling arrangement, the loss-given-default calculated in accordance with Article 192 shall be multiplied by the risk-share factor, calculated as follows:

Image omitted; see official source

where:

• (a) Image omitted; see official source

• (b) i denotes all pool members falling within the scope defined in Article 2 of Directive 2009/138/EC and j denotes all pool members excluded from the scope of Article 2 of that Directive;

• (c) Image omitted; see official source

• (d) Pj denotes the share of the total risk of the pooling arrangement undertaken by pool member j;

• (e) for pool members for which a credit assessment by a nominated ECAI is available, SRi and SRj shall be assigned in accordance with the following table: Credit quality step 0 1 2 3 4 5 6 SRi 196 % 196 % 175 % 122 % 95 % 75 % 75 %

• (f) for pool members which fall within the scope of Directive 2009/138/EC and for which a credit assessment by a nominated ECAI is not available, SRi and SRj shall be the latest available solvency ratio;

• (g) for pool members situated in a third country and for which a credit assessment by a nominated ECAI is not available:
• (i) SRi and SRj shall be equal to 100 % where the pool member is situated in a country whose solvency regime is deemed equivalent pursuant to Article 172 of Directive 2009/138/EC;
• (ii) SRi and SRj shall be equal to 75 % where the pool member is situated in a country whose solvency regime is not deemed equivalent pursuant to Article 172 of Directive 2009/138/EC.

Article 194

Loss-given-default for pool exposures of type B

Image omitted; see official source

where:

- (a) PU denotes the undertaking's share of the risk according to the terms of the pooling arrangement;

• (b) PC denotes the counterparty member's share of the risk according to the terms of the pooling arrangement;

• (c) RRC is equal to:
• (i) 10 % if 60 % or more of the assets of the counterparty member are subject to collateral arrangements;
• (ii) 50 % otherwise;

• (d) BEC denotes the best estimate of the liability ceded to the counterparty member by the undertaking, net of any amounts reinsured with counterparties external to the pooling arrangement;

• (e) ΔRMC denotes the counterparty member's contribution to the risk-mitigating effect of the pooling arrangement on the underwriting risk of the undertaking;

• (f) Collateral denotes the risk-adjusted value of collateral held by the counterparty member of the pooling arrangement;

• (g) F denotes the factor to take into account the economic effect of the collateral held by the counterparty member, calculated in accordance with Article 197.