Where Article 88 is complied with, insurance or reinsurance undertakings may calculate the loss-given-default on a reinsurance arrangement or insurance securitisation referred to in the first subparagraph of Article 192(2) as follows:

LGD = max[90 % · (Recoverables + 50 % · RM_re) – F ·Collateral; 0]

where:

a) Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement or insurance securitisation and the corresponding debtors;

b) RM_re denotes the risk mitigating effect on underwriting risk of the reinsurance arrangement or securitisation;

c) Collateral denotes the risk-adjusted value of collateral in relation to the reinsurance arrangement or securitisation;

d) F denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in case of any credit event related to the counterparty.