Without prejudice to Article 56 of this Regulation, insurance and reinsurance undertakings may calculate the adjustment for expected losses due to default of the counterparty, referred to in Article 81 of Directive 2009/138/EC, for a specific counterparty and homogeneous risk group to be equal as follows:
\mathrm{Adj}_{\mathrm{CD}} = -\max \left(0, 5 \cdot \frac{\mathrm{PD}}{1 - \mathrm{PD}} \cdot \mathrm{Dur}_{\mathrm{mod}} \cdot \mathrm{BE}_{\mathrm{rec}}; 0 \right)
where:
(a)((a)) PD denotes the probability of default of that counterparty during the following 12 months;
(b)((b)) Dur_{mod} denotes the modified duration of the amounts recoverable from reinsurance contracts with that counterparty in relation to that homogeneous risk group;
(c)((c)) BE_{rec} denotes the amounts recoverable from reinsurance contracts with that counterparty in relation to that homogeneous risk group.