Question ID: 1454
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 187, 52
Status: Final
Date of submission: 08 Mar 2018
Question
1) Article 187(1) of Delegated Regulation 2015/35 states:
Exposures in the form of covered bonds (CB) shall be considered as single name exposures, regardless of other exposures to the same counterparty as the issuer of the covered bonds, which constitute a distinct single name exposure.
CB = defined in the Article 52(4) of Directive 2009/65/EC
Does it mean that regardless of CQS all covered bonds in relation to one single name should constitute distinct single name regardless of other exposures to the same single name?
Example:
- consider 1 counterparty (single name)
- exposures:
bond A (CQS = 2)
covered bond B (CQS = 0)
covered bond C (CQS = unrated)
Is the correct interpretation to consider following separate single names for the purposes of concentration risk evaluation?:
SINGLE NAME 1.1 - bond A
SINGLE NAME 1.2 - covered bond B, covered bond C
2) When the aforementioned interpretation is correct, how the excess exposure (CT) should be assigned?
Article 187(1) of Delegated Regulation 2015/35 states:
Exposures in the form of bonds as referred to Article 52(4) of Directive 2009/65/EC (covered bonds) shall be assigned a relative excess exposure threshold CTi of 15 %, provided that the corresponding exposures in the form of covered bonds have been assigned to credit quality step 0 or 1.
Example (continued):
SINGLE NAME 1.2 includes covered bond B (CT = 15%) and covered bond C (CT = 3%). How should I assess the excess exposure which should be subject to risk charge g?
EIOPA answer
1)
Each covered bond issued by the same counterparty should be treated as a separate single name exposure. In the example provided one would therefore have (bond A and covered bonds B and C are issued by the same counterparty):
SINGLE NAME EXPOSURE 1.1 - bond A
SINGLE NAME EXPOSURE 1.2 - covered bond B
SINGLE NAME EXPOSURE 1.3 - covered bond C
2)
Based on the answer in 1) the calculations of the relative excess exposure is straightforward (for bond A based on Article 185 and for the covered bonds B and C based on Article 187(1) Delegated Regulation (EU) 2015/35).