1.Where insurance and reinsurance undertakings engage in the activity of providing loans, they shall have written policies to ensure all of the following:
(a)that credit-granting is based on sound and well-defined criteria and that the process for approving, amending, renewing and refinancing credits is clearly established;
(b)that undertakings have internal methodologies that enable them to assess the credit risk of exposures to individual obligors and at the portfolio level;
(c)that the ongoing administration and monitoring of the loan portfolios, including for identifying and managing problematic credits, and for making adequate value adjustments, is operated through effective systems;
(d)that the diversification of the loan portfolios is adequate given the target markets and overall investment strategy of the undertaking.
2.Where insurance and reinsurance undertakings engage in mortgage insurance or reinsurance, they shall base their underwriting on sound and well-defined criteria and comply with the requirements set out in points (b), (c) and (d) of paragraph 1 with regard to the mortgage loans underlying their insurance and reinsurance obligations.