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)) a) Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement or insurance securitisation and the corresponding debtors;
(b)) b) RM_{re} denotes the risk mitigating effect on underwriting risk of the reinsurance arrangement or securitisation;
(c)) c) Collateral denotes the risk-adjusted value of collateral in relation to the reinsurance arrangement or securitisation;
(d)) 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.