French Insurance Code
In forceI.-The risk analysis and measurement system referred to in Article R. 332-13 is described in the internal control report referred to in Article R. 336-1 and comprises :
1° A written loan investment policy defining the insurance undertaking's exposure limits by credit risk category;
2° A credit risk selection procedure comprising :
a) The compilation of credit files designed to collect all qualitative and quantitative information on counterparties;
b) A loan investment decision-making procedure, which must be clearly formalised, describe the organisation of delegations, be based on an analysis in which the person responsible has no direct interest in the investment decision and be adapted to the characteristics of the company, in particular its size, organisation and the nature of its business.
In particular, insurance undertakings shall ensure that loan investment decisions are taken by at least two people.
3° A credit risk measurement system enabling :
a) Identify, measure and aggregate the risk resulting from eligible credit transactions in accordance with the fourth paragraph of 1° of Article R. 332-13 and understand the interactions between this risk and the other risks to which the undertaking is exposed;
b) Understand and control concentration risk and residual risk by means of documented procedures;
c) Verify that the diversification of loans is consistent with the investment policy.
4° A procedure for proportionate monitoring, on a quarterly basis, of changes in the quality of each individual loan, making it possible to determine, where necessary, the appropriate level of impairment to be applied to the value of the loans. The determination of the appropriate level of impairment takes into account, where applicable, guarantees for which insurance undertakings must ensure that they can actually be implemented and the existence of a recent valuation carried out on a prudent basis. In accordance with d of 2° of Article R. 336-1, the monitoring procedure is carried out by persons who may not also be responsible for carrying out transactions and risk selection.
II - When the loans mentioned in the fourth paragraph of 1° of Article R. 332-13 are managed by a management company to which the insurance undertaking has entrusted a mandate, the insurance undertaking remains fully responsible for compliance with the obligations incumbent upon it. In particular, it shall ensure that the mandate complies with its investment policy and allow the management company access to the information necessary to carry out its risk monitoring procedure.
The insurance company shall also ensure that the management company has a risk analysis and measurement system that complies with the provisions of I of this article and is appropriate for the management of loans made through the mandate entrusted to it by the insurance company.
III - The criteria for selecting eligible credit transactions in accordance with the fourth paragraph of 1° of Article R. 332-13 are as follows:
1° The assessment of the credit risk takes account of the borrower's financial situation, in particular his ability to repay, and, where applicable, the guarantees received. It must also take into account an analysis of the business environment, the characteristics of the partners or shareholders and managers, and the most recent accounting documents;
2° The selection of investments in loans also takes into account their profitability in relation to the level of associated risk and the operational costs relating to their selection and monitoring.
