Solvency II Standard Formula SCR:
Counterparty Default Risk Module
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The counterparty default risk component of the Solvency II standard
formula Solvency Capital Requirement (SCR) covers the following risk exposures,
see in the Solvency II Delegated
Act:
-
Risk-mitigating contracts, such as reinsurance arrangements,
securitisations and derivatives;
-
Receivables from intermediaries; and
-
Any other credit exposures which are not covered in the market risk spread risk
sub-module including e.g. (this list does not aim to be exhaustive):
- Policyholder debtors
- Cash at bank
- Deposits with ceding
institutions
- Capital, initial funds, letters
of credit (and any other called up but unpaid commitments)
- Guarantees, letters of credit,
letters of comfort etc. provided by the undertaking as well as any other
commitments which the undertaking has provided and which depend on the credit
standing of a counterparty
Credit risk transferred via credit derivatives is typically covered
by the spread risk
sub-module rather than this module.
The methodologies proposed involved subdividing these
exposures between two classes. Type 1
aims to cover exposures primarily of the sort that might well not be
diversified and where the counterparty is likely to be rated (e.g. reinsurance
arrangements), whilst Type 2
aims to cover exposures primarily of the sort that are usually diversified and
where the counterparty is likely to be unrated (e.g. receivables from
intermediaries or policyholder debtors).
Links to Nematrian webpages
covering these standard formula SCR elements
-
Counterparty
risk for Type 1 exposures
-
Counterparty
risk for Type 2 exposures
-
Counterparty
loss-given-default assumptions
-
Correlations
Version dated 7 December 2015
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