Simplified calculation of the loss-given-default for reinsurance

Where Article 88 is complied with, insurance or reinsurance undertakings may calculate the loss-given-default on a reinsurance arrangement or insurance securitisation referred to in the first subparagraph of Article 192(2) as follows:

LGD = max[90 % · (Recoverables + 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) RMre 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.