Loss-given-default

1. The loss-given-default on a single name exposure shall be equal to the sum of the loss-given-default on each of the exposures to counterparties belonging to the single name exposure. The loss-given-default shall be net of the liabilities towards counterparties belonging to the single name exposure provided that those liabilities and exposures are set off in the case of default of the counterparties and provided that Articles 209 and 210 are complied with in relation to that right of set-off. No offsetting shall be allowed for if the liabilities are expected to be met before the credit exposure is cleared.

2. The loss-given-default on a reinsurance arrangement or insurance securitisation shall be equal to the following:

LGD= max [50%* (REcoverbales + 50% * RM re) - F * Collateral; 0]

where:

(a) Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement or insurance securitisation and the corresponding debtors;

(b) RM re denotes the risk mitigating effect on underwriting risk of the reinsurance arrangement or securitisation;

(c) Collateral denotes the risk-adjusted value of collateral in relation to the reinsurance arrangement or securitisation;

(d) F denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in case of any credit event related to the counterparty.

Where the reinsurance arrangement is with an insurance or reinsurance undertaking or a third country insurance or reinsurance undertaking and 60 % or more of that counterparty's assets are subject to collateral arrangements, the loss-given-default shall be equal to the following:

LGD= max[90%* (REcoverables + 50% * RM re) - F* Collateral; 0]

F' denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in the case of a credit event related to the counterparty.

3. The loss-given-default on a derivative shall be equal to the following:

LGD= max(90%(Derivative+RM fin) - F' *Collateral; 0)

where:

(a) Derivative denotes the value of the derivative in accordance with Article 75 of Directive 2009/138/EC;

(b) RM fin denotes the risk mitigating effect on market risk of the derivative;

(c) Collateral denotes the risk-adjusted value of collateral in relation to the derivative;

(d) F' denotes a factor to take into account the economic effect of the collateral arrangement in relation to the derivative in case of a credit event related to the counterparty.

4. The loss-given-default on a mortgage loan shall be equal to the following:

LGD= max(Loan - 80% * Mortgage; 0)

where:

(a) Loan denotes the value of the mortgage loan in accordance with Article 75 of Directive 2009/138/EC;

(b) Mortgage denotes the risk-adjusted value of the mortgage.

5. The loss-given-default on a legally binding commitment as referred to in Article 189(2)(e) of this Regulation shall be equal to the difference between its nominal value and its value in accordance with Article 75 of Directive 2009/138/EC.

6. The loss-given-default on cash at bank as defined in Article 6 item F of Council Directive 91/674/EEC, of a deposit with a ceding undertaking, of an item listed in Article 189(2)(d) or Article 189(3)(e) of this Regulation, or of a receivable from an intermediary or policyholder debtor, as well as any other exposure not listed elsewhere in this Article shall be equal to its value in accordance with Article 75 of Directive 2009/138/EC.