Article 191 of REGULATION (EU) 2015/35, states that residential mortgages shall be treated under the “Counterparty default risk”, provided that mortgages fulfil requirements stipulated in Article 191 Paragraphs (2) to (13). Paragraph 4 states: The total amount owed to the insurance or reinsurance undertaking and, where relevant, to all related undertakings within the meaning of Article 212(1)(b) and (2) of Directive 2009/138/EC, including any exposure in default, by the counterparty or other connected third party, shall not, to the knowledge of the insurance or reinsurance undertaking, exceed EUR 1 million. The insurance or reinsurance undertaking shall take reasonable steps to acquire this knowledge. We interpret that the EUR 1 million threshold, refers to the maximum exposure an insurance undertaking is allowed on a borrower in order to satisfy the requirement of Paragraph 4 and that this threshold does not refer to the total amount owed on a mortgage and/or other loans by the borrower, including amounts owed to any other funders.

The answer to this question is provided by the European Commission.

Article 191 of Commission Delegated Regulation (EU) 2015/35 provides for a specific treatment for certain types of retail loans secured by mortgages on residential property. Among other criteria, paragraph 4 of that Article sets out a size threshold to ensure the retail characteristics of the exposure. This criterion excludes that loans issued by an insurance undertaking can benefit from the treatment reserved for retail loans secured by mortgages on residential property where the amount owed to the insurance undertaking is larger than EUR 1 million. In the context of the look through approach pursuant to Article 84 of Commission Delegated Regulation (EU) 2015/35, loans issued by a collective investment undertaking and where the amount owed to collective investment undertaking is larger than EUR 1 million cannot be assumed to have retail characteristics in the sense of Article 191 of that Regulation and they cannot benefit from the treatment reserved for retail loans secured by mortgages on residential property.
In the example, the insurance undertaking should include the mortgage loan in the scope of the spread risk sub-module set out in Title I, Chapter V, Section 5, Sub-section 5 of Commission Delegated Regulation (EU) 2015/35.

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The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies, in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.