3E8 Loss-Given-Default for Pool Exposures of Type C | Prudential Regulation Authority Handbook & Rulebook
Prudential Regulation Authority Rulebook

Prudential Regulation Authority Rulebook

Part

Solvency Capital Requirement - Standard Formula

Article

3E8 Loss-Given-Default for Pool Exposures of Type C

Printed on: 23/06/2025

Rulebook at: 28/03/2025


3E8 Loss-Given-Default for Pool Exposures of Type C

1.

For pool exposures of type C which a firm is permitted to treat as separate single name exposures in accordance with 3E2.2, the firm must calculate the loss-given-default in accordance with the following formula:

LGD=max(((1−RRCE)⋅(PU⋅BECE+ΔRMCE)−F⋅Collateral);0)

where:  
(a) PU denotes the firm's share of the risk according to the terms of the pooling arrangement;
(b) RRCE is equal to:
  (i) 10% if 60% or more of the assets of the external counterparty member are subject to collateral arrangements; or
  (ii) 50% otherwise;
(c) BECE denotes the best estimate of the liability ceded to external counterparty by the pooling arrangement as a whole;
(d) ΔRMCE denotes the external counterparty’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