The European Banking Authority (EBA) published an opinion on the treatment of credit insurance in the prudential framework, in response to the extensive feedback received in its public consultations on draft guidelines (GL) on credit risk mitigation for institutions applying the internal ratings-based approach (IRBA) with own estimates of loss given default (LGD), in which the EBA calls for the implementation of the final Basel III framework as agreed by the Basel Committee on Banking Supervision (BCBS), i.e., not allowing own estimates of LGD for exposures to financial institutions, including insurance companies. As a result, the regulatory values of LGD must be used also where the effects of credit insurance used as credit risk mitigation is recognised through substitution of risk parameters, despite the higher seniority of claims from policy insurance over other claims towards insurance undertakings.

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