3E6 Loss-Given-Default for Pool Exposures of Type A

Part

Solvency Capital Requirement - Standard Formula

Article

3E6 Loss-Given-Default for Pool Exposures of Type A

Printed on: 22/06/2025

Rulebook at: 25/05/2025

3E6 Loss-Given-Default for Pool Exposures of Type A

For pool exposures of type A which a firm is permitted to treat as separate single name exposures in accordance with 3E2.2, where members are each only liable up to their respective portion of the obligation covered by the pooling arrangement, the firm must calculate the loss-given-default in accordance with 3E4.

31/12/2024

For pool exposures of type A which a firm is permitted to treat as separate single name exposures in accordance with 3E2.2, where members are each liable up to the full amount of the obligation covered by the pooling arrangement, a firm must multiply the loss-given-default calculated in accordance with 3E4 by the risk-share factor, calculated in accordance with the following formula:

$r i s k - s h a r e_f a c t o r = e^{- 0.15 (min (S R, 196 %) - 1)}$

where:
(a)	$S R = (1 - P) \cdot \frac{\sum_{i} E O F_{i}}{\sum_{i} (^{E O F_{i}} /_{S R_{i}})} + \sum_{j} P_{j} \cdot {S R}_{j};$
(b)	i denotes all pool members which are UK Solvency II undertakings and j denotes all pool members which are third country insurance undertakings or third country reinsurance undertakings;
(c)	$P = \sum_{j} P_{j};$
(d)	P_j denotes the share of the total risk of the pooling arrangement undertaken by pool member j; and
(e)	for pool members for which a credit assessment by a nominated external credit assessment institution is available, SR_i and SR_j must be assigned in accordance with the following table:

Credit quality step	0	1	2	3	4	5	6
SR_i	196%	196%	175%	122%	95%	75%	75%

(f)	for pool members which are UK Solvency II undertakings and for which a credit assessment by a nominated external credit assessment institution is not available, SR_i and SR_j must be the latest available solvency ratio; and
(g)	for pool members situated in a third country and for which a credit assessment by a nominated external credit assessment institution is not available:
	(i)	SR_iand SR_jmust be equal to 100% where the pool member is situated in a third country which is an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation; and
	(ii)	SR_iand SR_jmust be equal to 75% where the pool member is situated in a third country which is not an overseas jurisdiction designated under regulation 11 in relation to regulation 13 of the IRPR regulations in respect of the insurance group capital requirements calculation.

31/12/2024

Where a firm is ceding risk to a pooling arrangement by the intermediary of a central undertaking, the firm must treat the central undertaking as part of the pooling arrangement and calculate its share of the risk accordingly.

31/12/2024