Estimation methodologies for best estimate of expected loss (BEEL) and LGD in-default

16.1 The PRA expects that firms using the AIRB approach should assign a BEEL estimate and an LGD in-default estimate to each defaulted exposure within the range of application of each rating system for which this approach is used.

16.2 Firms should estimate BEEL and LGD in-default for each of the facility grades of the distinct facility rating scale or for each of the pools that are used within the rating system.

16.3 For the purposes of BEEL and LGD in-default estimation, and unless otherwise specified in this chapter, firms should use the same estimation methods used for estimating LGD for non-defaulted exposures, as set out in Chapter 13 - LGD - calibration (general) and Chapter 14 - LGD - calibration (long-run average).

16.4 Firms should take into consideration all relevant post-default information in their BEEL and LGD in-default estimates in a timely manner, in particular where events from the recovery process invalidate the recovery expectations underlying the most recent estimates.

16.5 Firms should assess and duly justify situations where the estimates of LGD in-default shortly after the date of default systematically deviate from the LGD estimates immediately before the date of default at the facility grade or pool, where these deviations do not stem from the use of risk drivers that are applicable only from the date of default onwards.