Question ID: 1408
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 192
Status: Final
Date of submission: 23 Apr 2018
Question
In Article 192, the wording indicates that the LGD is calculated at contract level. Therefore, for a single counterparty, the floor by zero is applied for each related contract, and a gain following the default can not compensate a loss.
However, in helpertab, the floor at zero is applied per counterparty.
Which one of the interpretations is the right one?
EIOPA 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/consultations/eiopa-18-075-eiopa_second_set_of_advice_on_sii_dr_review.pdf)