Counterparty Default Template

[DmytroBigun]

New changes since Q1 2022 CDT: 1) For aggregated file use the most up-to-date FX rates (based on 30.09.2022) 2) check that the exposure for AIA Life is fully allocated to SHA (HR LE) and not to Ir

[DmytroBigun]

3. Client Domicile field has to be corrected (for external retro especially)

[DmytroBigun]

Logic behind the CDT:

LE Name of client Cedent/Flag HR AIA Cedent

This means AIA ceeds the business to us

LE Name of client Cedent/Flag HR AIA Retro

This means we cede the business to AIA

[DmytroBigun]

3. Ask for the reason of decrease in Exposure for Scottish Friendly (IR LE only) -> Justine Answer: Business in IR is closed for the NB, so natural run-off of the business. Also MC (changes in reserves/IBNR projections)

[DmytroBigun]

For Q4 2022 do not update Ber and Ireland F/X rates -> update Jerome, Angel and Torben about it

[DmytroBigun]

The metrics that is used for BEL is w/o CDA (before CDA)

[DmytroBigun]

To clarify additional delivery of data for Aus/Ir (Counterparty Default Evergreen/Primary Insurance)

[DmytroBigun]

The IM Rating is set according to following rules:

1. Use existing internal ratings. Those are HR internal ratings that are determined and set by GRM-COR-Counterparty Credit Risk (Dirk Langenau)
2. Use Average Rating calculated from ratings provided by external rating agencies (S&P, A.M. Best, Fitch, Moody’s)
3. Rating modelling class determined by SII solvency ratios
4. Internal rating for the (remaining) Top 10 non-rated counterparties (i.e. the Top 10 non-rated companies for each due date shall be rated internally).
5. Apply BBB for counterparties domiciled in a “SII regulated country” or “SII equivalent country” or a country that we would regard as “SII equivalently regulated” (e.g. China, South Africa).
6. BB else

[DmytroBigun]

Limit = 2% Amount of assets under management of the HR Group/ (60% rating weight) * Alpha, where 60% reflects the assumption that the default recovery rate of any company is 40%, i.e. 60%=(1-40%) and Alpha=150%.

[DmytroBigun]

Double-Default logic: Let us assume that the exposure X before collateral is > 0. Let Y>=0 be the collateral amount. The total exposure across the two modules must be X. The modules are the “main model” (MM) and the “double default model” (DDM).

Assume X >Y.

Then X = X-Y +Y, with Exposure X-Y>0 in MM and Y in DDM.

Assume X<=Y

Then X-Y<= 0, with Exposure = 0 in MM and X in DDM.

In both cases

Exposure MM = max(X-Y;0) and Exposure DDM = min(X;Y)

If X<0, then Exposure MM = 0 and Exposure DDM = 0, so I think the right formula is

Exposure MM = max(X-Y;0) and Exposure DDM =max(0; min(X;Y)).

[DmytroBigun]

Haircut for Risk Business only

1) Wenn wir bei Risk Business eine negative BEL haben, so handelt es sich offenbar um profitables Geschäft und damit hoffentlich auch aus Sicht des Zedenten. Damit ist das unterliegende Geschäft auch für andere Gesellschaften interessant, die das Geschäft übernehmen könnten. Auch dabei kann natürlich Wert verloren gehen (Storno, Ratenverhandlung), aber es sollte helfen. 2) Bei FS bringt es dem Zedenten vielleicht auch Solvenzentlastung. Cash mäßig geht aber vor allem Geld raus. Vielleicht braucht ein Käufer FS nicht, es ist ihm zu teuer oder das unterliegende Geschäft ist vielleicht gar nicht interessant, oder er deckt den Kapitalbedarf selbst ab. Echter Risk Relief ist ja in der Regel nicht dabei, so dass man weniger darauf bauen kann, dass sich ein Käufer findet, der das Portfolio übernehmen möchte, auf dem eine für den RVer so profitable FS Lösung „sitzt“. Ein Beispiel: wir haben mit einem chinesischen Kunden (HuaXia Life, HXL) eine FS Deckung abgeschlossen. In 2020 kam HXL unter Kontrolle der Aufsicht. Das war noch kein Ausfall, ging aber in die Richtung. Die Aufsicht war der Auffassung, dass sie keine Solvenzentlastung benötigt, wenn sie ohnehin alles im Griff hat und kann die Kosten sparen. Der Vertrag wurde dann kostenfrei gekündigt. Jetzt ist China vielleicht nicht repräsentativ für den Rest der Welt, aber das Beispiel illustriert den Gedanken.

[DmytroBigun]

For HO: if Counterparty has a couple of Client Domiciles map to the one that is headquarters for Q1+ onwards

[DmytroBigun]

Clarify with Anita if LAB BR should be assigned to BAH SUB LE -> should be BAH SUB

[DmytroBigun]

After LARS implementation CDT data should be available in MS (simple MS report download). Payables/Receivables should also be available from accounting systems. It should be ready to use in Q2 2023

[DmytroBigun]

Each Run adjust LE for LAB BR to BAH_SUB (shouldn't be HR)

[DmytroBigun]

• For Q4 2022 CDT delivery mention that Great-West Lifeco has IM BBB (DFA can change it to AA- as discussed before)
• For Q4 2022 do not update Ber and Ireland F/X rates
• Update the figures for Qian Hai Life (using Q3 SII data)

[DmytroBigun]

Fee Collateral: Insurance company gives fee to the custody account (bank) and in case of default even for the Cedany (Ins comp) we obtain the money Exp Collateral: If we see that we pay less claims than expected then we ask Cedant to provide the collateral If we see that we pay more claims than expected then we put the Collateral for the Cedant

[DmytroBigun]

LCF for the US:

We have Losses from the previous year (if BEL is with negative sign then income) which we transfer to the next year. If the BEL is negative we have a high interest on it, so we expect more profit from the Cedant next year. But if the Cedant repays the portion we will get less income from the interest rate (and BEL becomes less negative)