2. IMPACT OF INSURANCE AND OTHER RISK TRANSFER MECHANISMS

Credit institutions shall be able to recognise the impact of insurance subject to the conditions set out in points 26 to 29 and other risk transfer mechanisms where the credit institution can demonstrate to the satisfaction of the competent authorities that a noticeable risk mitigating effect is achieved. The provider is authorised to provide insurance or re-insurance and the provider has a minimum claims paying ability rating by an eligible ECAI which has been determined by the competent authority to be associated with credit quality step 3 or above under the rules for the risk weighting of exposures to credit institutions under Articles 78 to 83. The insurance and the credit institutions' insurance framework shall meet the following conditions: the insurance policy must have an initial term of no less than one year. For policies with a residual term of less than one year, the credit institution must make appropriate haircuts reflecting the declining residual term of the policy, up to a full 100 % haircut for policies with a residual term of 90 days or less; the insurance policy has a minimum notice period for cancellation of the contract of 90 days; the insurance policy has no exclusions or limitations triggered by supervisory actions or, in the case of a failed credit institution, that preclude the credit institution receiver or liquidator, from recovering for damages suffered or expenses incurred by the credit institution, except in respect of events occurring after the initiation of receivership or liquidation proceedings in respect of the credit institution; provided that the insurance policy may exclude any fine, penalty, or punitive damages resulting from actions by the competent authorities; the risk mitigation calculations must reflect the insurance coverage in a manner that is transparent in its relationship to, and consistent with, the actual likelihood and impact of loss used in the overall determination of operational risk capital; the insurance is provided by a third party entity. In the case of insurance through captives and affiliates, the exposure has to be laid off to an independent third party entity, for example through re-insurance, that meets the eligibility criteria; and the framework for recognising insurance is well reasoned and documented. The methodology for recognising insurance shall capture the following elements through discounts or haircuts in the amount of insurance recognition: the residual term of an insurance policy, where less than one year, as noted above; a policy's cancellation terms, where less than one year; and the uncertainty of payment as well as mismatches in coverage of insurance policies. The capital alleviation arising from the recognition of insurance shall not exceed 20 % of the capital requirement for operational risk before the recognition of risk‐mitigation techniques.

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Source: EUR-Lex (Cellar) · retrieved 2026-10-09 · Text as adopted (Official Journal); later amendments are not incorporated in this text.