Question ID: 1506
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 187
Status: Final
Date of submission: 17 Apr 2018
Question
We have a doubt related to the treatment of covered bonds in the concentration risk module. (art.187 Delegated Acts 2015/35). The article fixes a threshold of 15% to these exposures provided that they have a credit quality step 0 or 1. In this case the covered bonds should be considered as a distinct single name exposure, regardless of other exposures to the same counterparty.
What is the treatment for covered bonds that have a different credit rating? Should they be treated as a standard exposure? In that case, they should be aggregated with the rest of exposures to the same counterparty, having a common threshold that will depend on the weighted average rating.
The article 187 establish that “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.”, and it doesn’t specify if this is only applicable to covered bonds with rating 0 and 1. Is it also applicable to covered bonds with different credit ratings?
EIOPA answer
The provisions in Article 187(1) second sentence of the Delegated Regulation apply to exposures in the form of covered bonds irrespective of the assigned credit quality step (i.e. they are to be treated as separate single name exposures). The risk factor and the relative excess exposure thresholds are to be determined in accordance with Article 186(1) and Article 185 respectively using the credit quality step assigned to the covered bond in accordance with Title I Chapter I Section 2 of the Delegated Regulation as the weighted average credit quality step.