Requirements for an undertaking's own internal credit assessment of bonds and loans

The requirements to be met for the purposes of point (a) of Article 176a(3) by an insurance or reinsurance undertaking's own internal credit assessment of a bond or loan shall be as follows:

(b) he bond or loan is allocated a credit quality step on the basis of the own internal credit assessment;

(c) insurance or reinsurance undertaking is able to demonstrate to the supervisory authority's satisfaction that the own internal credit assessment, and the allocation of a credit quality step to the bond or loan on the basis of that assessment, are reliable and properly reflect the spread risk of the bond or loan contained in the sub-module specified in point (d) of the second subparagraph of Article 105(5) of Directive 2009/138/EC;

(d) the own internal credit assessment takes into account all factors which could have a material effect on the credit risk associated with the bond or loan, including the following factors:

(i) the competitive position of the issuer;

(ii) the quality of the issuer's management;

(iii) the financial policies of the issuer;

(iv) country risk;

(v) the effect of any covenants that are in place;

(vi) the issuer's financial performance history, including the number of years that it has been operating;

(vii) the issuer's size and the level of diversity in its activities;

(viii) the quantitative impact on the issuer's risk profile and financial ratios of its having issued the bond or loan; 

(ix) the issuer's ownership structure;

(x) the complexity of the issuer's business model;

(e) the own internal credit assessment uses all relevant quantitative and qualitative information;

(f) the own internal credit assessment, the allocation of a credit quality step on the basis of that assessment and the information used to support the own internal credit assessment is documented;

(g) the own internal credit assessment takes into account the characteristics of comparable assets for which a credit assessment by a nominated ECAI is available;

(h) the own internal credit assessment takes into account trends in the issuer's financial performance;

(i) the own internal credit assessment is procedurally independent from the decision to underwrite;

(j) the insurance or reinsurance undertaking regularly reviews the own internal credit assessment.