Question ID: 1180
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 199
Status: Final
Date of submission: 16 Mar 2018
Question
I have a question on calculation of PD on the level of group of (dependent) counterparties (commonly refered to as "single name exposure").
Does paragraph 1 means that I need to assign each exposure a PD (based on the CQS of that exposures) and then agregate it (using weighted averge) to the level of counterparty and then to the level of group of (dependent) counterparties?
Or does it mean that I need to assign PD to counterparty (based on CQS of that counterparty) and then aggregate PD using weigted average?
Let's consider that counterparty is rated (i.e. CQS was assigned to it) therefore paragraph 2 should be used. The question is how exactly?
EIOPA answer
Pursuant to Article 199(1) , the probability of default on a single name exposure is equal to the average of the probability of default of each individual exposure belonging to a single name exposure; this requires that a probability of default is assigned to each individual exposure. Where an individual exposure has not been assigned a credit assessment by a nominated ECAI, the counterparty's credit assessment may be used where the conditions laid down in Article 5 are met. An aggregation on the level of the counterparty is not foreseen.