Commission Delegated Regulation (EU) 2015/35Show full title

Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance)

Article 199U.K.Probability of default

1.The probability of default on a single name exposure shall be equal to the average of the probabilities of default on each of the exposures to counterparties that belong to the single name exposure, weighted by the loss-given-default in respect of those exposures.

2.Single name exposure i for which a credit assessment by a nominated ECAI is available shall be assigned a probability of default PDi in accordance with the following table.

Credit quality step0123456
Probability of default PDi 0,002 %0,01 %0,05 %0,24 %1,20 %4,2 %4,2 %

3.Single name exposures i to an insurance or reinsurance undertaking for which a credit assessment by a nominated ECAI is not available and where this undertaking meets its Minimum Capital Requirement, shall be assigned a probability of default PDi depending on the undertaking's solvency ratio, in accordance with the following table:

Solvency ratio196 %175 %150 %125 %122 %100 %95 %75 %
Probability of default0,01 %0,05 %0,1 %0,2 %0,24 %0,5 %1,2 %4,2 %

Where the solvency ratio falls in between the solvency ratios specified in the table above, the value of the probability of default shall be linearly interpolated from the closest values of probabilities of default corresponding to the closest solvency ratios specified in the table above. Where the solvency ratio is lower than 75 %, the probability of default shall be 4,2 %. Where the solvency ratios is higher than 196 %, the probability of default shall be 0,01 %.

For the purposes of this paragraph, ‘solvency ratio’ denotes the ratio of the eligible amount of own funds to cover the Solvency Capital Requirement and the Solvency Capital Requirement, using the latest available values.

4.Exposures to an insurance or reinsurance undertaking that do not meet its Minimum Capital Requirement shall be assigned a probability of default equal to 4,2 %.

5.Paragraphs 3 and 4 of this Article shall only apply as of the first date of public disclosure, by the undertaking corresponding to the exposure, of the report on its solvency and financial condition F1.... Before that date, if a credit assessment by a nominated ECAI is available for the exposures, paragraph 2 shall apply. Otherwise, the exposures shall be assigned the same risk factor as the ones that would result from the application of paragraph 3 to exposures to an insurance or reinsurance undertaking whose solvency ratio is 100 %.

6.Exposures to a third country insurance or reinsurance undertaking for which a credit assessment by a nominated ECAI is not available, situated in a country whose solvency regime is deemed equivalent F2... in accordance with [F3Article 379A of this Regulation], and which complies with the solvency requirements of that third-country, shall be assigned a probability of default equal to 0,5 %.

7.Exposures to credit institutions and financial institutions within the meaning of points (1) and (26) of Article 4(1) of Regulation (EU) No 575/2013 which comply with the solvency requirements set out in Directive 2013/36/EU and Regulation (EU) No 575/2013, for which a credit assessment by a nominated ECAI is not available, shall be assigned a probability of default equal to 0,5 %.

8.Exposures to counterparties referred to in points (a) to (d) of Article 180(2) shall be assigned a probability of default equal to 0 %.

9.The probability of default on single name exposures other than those identified in paragraphs 2 to 8 shall be equal to 4,2 %.

10.Where a letter of credit, a guarantee or an equivalent arrangement is provided to fully secure an exposure and this arrangement complies with Articles 209 to 215, the provider of that letter of credit, guarantee or equivalent arrangement may be considered as the counterparty on the secured exposure for the purposes of assessing the probability of default of a single name exposure.

11.For the purposes of paragraph 10, exposures fully, unconditionally and irrevocably guaranteed by counterparties listed in [F4Commission Implementing Regulation (EU) 2015/2011 laying down implementing technical standards with regard to the lists of regional governments and local authorities, exposures to whom are to be treated as exposures to the central government in accordance with Directive 2009/138/EC of the European Parliament and of the Council] shall be treated as exposures to the central government.

[F5 [X112. Notwithstanding paragraphs 2 to 11, exposures referred to Article 192(3) shall be assigned a probability of default equal to 0,002 %.

13. Notwithstanding paragraphs 2 to 12, exposures referred to Article 192(3a) shall be assigned a probability of default equal to 0,01 %.] ]

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