EIOPA · 2081
Technical Provisions (TPs)
- Regulation
- (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII), (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
- Article
- Article 42 of the Delegated Regulation; Article 81 of the SII Directive
- Topic
- Technical Provisions (TPs)
- Submitted
- 2019-12-03
- Answered
- 2021-06-11
Question
Should the counterparty default adjustment for the valuation of recoverables from reinsurance contracts and special purpose vehicles, as referred to in Article 42 of the Regulation and Article 81 of the Directive, be based on the market consistent expected losses or on the best estimate expected losses?
Answer
The counterparty default adjustment for the valuation of recoverables from reinsurance contracts and special purpose vehicles, as referred to in Article 42 of the Regulation and Article 81 of the Directive, can be based both on the market consistent expected losses or on the best estimate expected losses.
However, where there is evidence that the credit quality of the reinsurer has evolved quickly, PD should be estimated using a methodology sensitive enough to capture this movement, which might require using market consistent expected losses.
This Q&A is published by European Insurance and Occupational Pensions Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.
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