Question ID: 2545
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Solvency Capital Requirement (SCR)
Article: 180; 199; 209; 215
Status: Final
Date of submission: 19 Dec 2022
Question
Article 199 Paragraph (8) states that 'Exposures to counterparties referred to in points (a) to (d) of Article 180(2) shall be assigned a probability of default equal to 0 %.'
Should this be applied to counterparties who are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d) of article 180(2), where the guarantee meets the requirements set out in Article 215?
In our example the counterparty is a reinsurer providing terrorism cover who has an unconditional guarantee provided by the central government.
In the counterparty default risk module, should this exposure have a probability of default of 0% applied due to the guarantee, or should article 199 paragraph (5) apply instead and the credit quality step of the government providing the guarantee be used in place of the reinsurer (which in this case is unrated).
EIOPA answer
The probability of default for type 1 exposures for the counterparty default risk module should be calculated in accordance with Article 199 of Delegated Regulation (EU) 2015/35.
The probability of default equal to 0% mentioned in Article 199(8) DR should be only assigned to the exposures to counterparties set out in points (a) to (d) of Article 180(2) DR.
In accordance with Article 199(10) DR, when a guarantee is provided to fully secure an exposure which complies with Articles 209 to 215 DR, the provider of the guarantee may be considered to be the counterparty when assessing the probability of default of this single name exposure. In that case, this exposure should be assumed to have a probability of default of 0% if the provider of the guarantee falls under points (a) to (d) of Article 180(2) DR.