Scope

1. The capital requirement for counterparty default risk shall be equal to the following:

SCR def= sqrt (SCR^2 (def,1) + 1,5 * SCR (def,1) * SCR (def,2) + SCR^2 (def,2) )

where:

(a) SCR def,1 denotes the capital requirement for counterparty default risk on type 1 exposures as set out in paragraph 2;

(b) SCR def, 2 denotes the capital requirement for counterparty default risk on type 2 exposures as set out in paragraph 3.

2. Type 1 exposures shall consist of exposures in relation to the following:

(a) Risk-mitigation contracts including reinsurance arrangements, special purpose vehicles, insurance securitisations and derivatives;

(b) Cash at bank as defined in Article 6 item F of Council Directive 91/674/EEC;

(c) Deposits with ceding undertakings, where the number of single name exposures does not exceed 15;

(d) Commitments received by an insurance or reinsurance undertaking which have been called up but are unpaid, where the number of single name exposures does not exceed 15, including called up but unpaid ordinary share capital and preference shares, called up but unpaid legally binding commitments to subscribe and pay for subordinated liabilities, called up but unpaid initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings, called up but unpaid guarantees, called up but unpaid letters of credit, called up but unpaid claims which mutual or mutual-type associations may have against their members by way of a call for supplementary contributions;

(e) Legally binding commitments which the undertaking has provided or arranged and which may create payment obligations depending on the credit standing or default on a counterparty including guarantees, letters of credit, letters of comfort which the undertaking has provided.

3. Type 2 exposures shall consist of all credit exposures which are not covered in the spread risk sub-module and which are not type 1 exposures, including the following:

(a) Receivables from intermediaries;

(b) Policyholder debtors;

(c) mortgage loans which meet the requirements in Article 191(2) to (13);

(d) Deposits with ceding undertakings, where the number of single name exposures exceeds 15;

(e) Commitments received by an insurance or reinsurance undertaking which have been called up but are unpaid as referred to in paragraph 2(d), where the number of single name exposures exceeds 15.

4. Insurance and reinsurance undertakings may, at their discretion, consider all exposures referred to in points (d) and (e) of paragraph 3 as type 1 exposures, regardless of the number of single name exposures.

5. Where a letter of credit, a guarantee or an equivalent risk mitigation technique has been provided to fully secure an exposure and this risk mitigation technique complies with the requirements of Articles 209 to 215, then the provider of that letter of credit, guarantee or equivalent risk mitigation technique may be considered as the counterparty on the secured exposure for the purposes of assessing the number of single name exposures.

6. The following credit risks shall not be covered in the counterparty default risk module:

(a) the credit risk transferred by a credit derivative;

(b) the credit risk on debt issuance by special purpose vehicles, whether as defined in Article 13(26) of Directive 2009/138/EC or not;

(c) the underwriting risk of credit and suretyship insurance or reinsurance as referred to in lines of business 9, 21 and 28 of Annex I of this Regulation;

(d) the credit risk on mortgage loans which do not meet the requirements in Article 191(2) to (9).

7. Investment guarantees on insurance contracts provided to policy holders by a third party and for which the insurance or reinsurance undertaking would be liable should the third party default shall be treated as derivatives in the counterparty default risk module.