Question ID: 930
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 192
Status: Final
Date of submission: 19 Jun 2018
Question
The Article 192, paragraph 3, indicates the LGD formula to be applied per derivative. Let's assume that the undertaking has three contracts (=positions) with the same counterparty. Two positions share the same derivative (= same issue or same security or same ISIN code) and the third one on another ISIN code. Shall we apply the LGD formula (floor, RM effect calculation, etc...) for each contract (ie 3 times) or for each issue (ie 2 times)?
EIOPA answer
The floor in Article 192(3) of Commission Delegated Regulation (EU) 2015/35 has to be applied per derivative contract. In case of contractual netting agreements insurers can consider the collected collateral by dividing the collected collateral between the contracts.
Please be aware of the proposals that EIOPA made on the calculation of the risk-mitigating effect and the loss-given-default on derivatives – See paragraphs 1450 to 1457 in EIOPA's second set of advice to the European Commission on specific items in the Solvency II Delegated Regulation (https://www.eiopa.europa.eu/sites/default/files/publications/consultations/eiopa-18-075-eiopa_second_set_of_advice_on_sii_dr_review.pdf)