3E7 Loss-Given-Default for Pool Exposures of Type B

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Solvency Capital Requirement - Standard Formula

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3E7 Loss-Given-Default for Pool Exposures of Type B

Printed on: 06/04/2025

Rulebook at: 31/12/2024

3E7 Loss-Given-Default for Pool Exposures of Type B

For pool exposures of type B 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, the firm must calculate the loss-given-default in accordance with the following formula:

$L G D = m a x (((1 - R R_{c}) \cdot (\frac{P_{u}}{(1 - P_{c})} B E_{c} + Δ R M_{c}) - F \cdot C o l l a t e r a l); 0)$

where:
(a)	P_U denotes the firm’s share of the risk according to the terms of the pooling arrangement;
(b)	P_C denotes the counterparty member’s share of the risk according to the terms of the pooling arrangement;
(c)	RR_C is equal to:
	(i)	10% if 60% or more of the assets of the counterparty member are subject to collateral arrangements; or
	(ii)	50% otherwise;
(d)	BE_C denotes the best estimate of the liability ceded to the counterparty member by the firm, net of any amounts reinsured with counterparties external to the pooling arrangement;
(e)	ΔRM_C denotes the counterparty member’s contribution to the risk-mitigating effect of the pooling arrangement on the underwriting risk of the firm;
(f)	Collateral denotes the risk-adjusted value of collateral provided by way of collateral arrangement held by the counterparty member of the pooling arrangement; and
(g)	F denotes the factor to take into account the economic effect of the collateral provided by way of a collateral arrangement held by the counterparty member, calculated in accordance with 3E10.

31/12/2024

For pool exposures of type B 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 the following formula:

$L G D = m a x (((1 - R R_{C E}) \cdot (P_{c} \cdot B E_{C E} + Δ R M_{C E}) - F \cdot C o l l a t e r a l); 0)$

where:
(a)	P_C denotes the counterparty member’s share of the risk according to the terms of the pooling arrangement;
(b)	RR_C is equal to:
	(i)	10% if 60% or more of the assets of the counterparty member are subject to collateral arrangements; or
	(ii)	50% otherwise;
(c)	BE_U denotes the best estimate of the liability ceded to the pooling arrangement by the undertaking, net of any amounts reinsured with counterparties external to the pooling arrangement;
(d)	ΔRM_C denotes the counterparty member’s contribution to the risk-mitigating effect of the pooling arrangement on the underwriting risk of the firm;
(e)	Collateral denotes the risk-adjusted value of collateral provided by way of collateral arrangement held by the counterparty member of the pooling arrangement; and
(f)	F denotes the factor to take into account the economic effect of the collateral provided by way of a collateral arrangement held by the counterparty member, calculated in accordance with 3E10.

31/12/2024