EIOPA · 930
930
- Regulation
- (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
- Article
- 192
- Submitted
- 2018-06-19
- Answered
- 2019-09-10
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)?
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/consultati…)
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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