Instruction No. 2013-I-18 of December 12, 2013, regarding approval requests for unsecured loan programs granted by insurance companies

PRUDENTIAL CONTROL AND RESOLUTION AUTHORITY

Instruction No. 2013-I-18 dated December 12, 2013 regarding requests for approval of unsecured loan programs g granted by insurance companies

The Prudential Control and Resolution Authority, Having regard to the Monetary and Financial Code, particularly Article L. 612-24; Having regard to the Insurance Code, particularly Articles R. 332-2 and R. 332-13; Having regard to the opinion of the Prudential Affairs Consultative Committee dated November 29, 2013; Decides:

Article 1
The term "subject companies" hereinafter refers to the insurance companies mentioned in Article L. 310-1 of the Insurance Code.

Article 2
Subject companies wishing to request the approval of the Prudential Control and Resolution Authority, prior to granting the unsecured loans mentioned in Article R. 332-13 of the Insurance Code, must submit a written application, accompanied by an "application file for the approval of an unsecured loan program" whose constituent elements are set out in the annex to this instruction.

Article 3
The application file for the approval of an unsecured loan program must be sent in three copies to the following address:
General Secretariat of the Prudential Control and Resolution Authority 4, Place de Budapest CS 92459 75436 Paris Cedex 09

Article 4
Following the approval of an unsecured loan program, subject companies must promptly notify the Prudential Control and Resolution Authority in writing of any substantial modification to the constituent elements of the initial application file, as well as any significant event that has affected or is likely to affect the implementation of the approved program. This article does not apply to the information contained in Section II B/ of the annex to this instruction.

Article 5 - This instruction enters into force upon its publication.
Paris, December 12, 2013

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The President of the Authority
Prudential Control and Resolution
[Christian NOYER]

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Annex
Constituent elements of the application file for the approval of an unsecured loan program

The file intended to accompany the request for approval of an unsecured loan program must consist of at least the following elements:

I/ Information relating to the subject company

• Identity of the subject company;
• Presentation of the activity, including notably the lending activity already granted under Articles R. 332-2 10° to 12 bis° or under any other title, and the resources allocated (headcount in particular);
• Presentation of the subject company's credit portfolio (notably distribution by category, product, economic sector, rating, defaulting counterparties, etc.).

II/ Information relating to the unsecured loan program and selection criteria A/ Information on the general principles of the unsecured loan program

• Categories of borrowers targeted, notably by sector, country, and credit quality (with reference to an internal rating or the Banque de France credit rating, where applicable);
• Presentation of the selection criteria retained;
• Elements likely to affect the program as a whole.

B/ Information on the characteristics of the envisaged loans

• Main characteristics of the unsecured loans that could be granted under the program (isolated or grouped loans, loans forming part of a contractual package involving, where applicable, other lending entities; general characteristics of maturity and interest rate; special conditions likely to affect the loan (case of default, loan structure, and notably its complexity or simplicity); intention or not to retain all or part of the claims on the balance sheet (in the case of a planned transfer, information relating to the anticipated volume of transfers or transfers of claims, conditions and procedures for these transfers or transfers);
• Provisional schedule for the unsecured loan program (date of implementation, sequencing, among others); maximum amount of the expected outstanding balance; financing conditions of the program (expected impact of the program in terms of coverage of regulated commitments);
• Expected profitability relative to associated risk levels and operational costs, and estimation of foreseeable gains or losses;

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• Entities other than the subject company that, where applicable, could participate directly or indirectly in the loan or that might intervene as an intermediary in all or part of the operations covered by the program;
• Any other information (including nominative, if necessary) allowing an understanding of the nature and scope of the program.

III/ Information on the risk analysis and measurement system:

• Communication of the written investment policy in loans defining individual, sectoral, and country exposure limits for the insurance company;
• Description of the credit risk selection procedure with:
  o the procedures for constituting credit files (presentation of qualitative and quantitative information collected on counterparties, including notably the description of the methodology retained to assess credit quality); o the investment decision process for a loan, with information regarding delegations, the designation of persons or committees responsible for taking investment decisions, and the organization ensuring that the investment decision is based on an analysis whose manager has no direct interest in the investment decision.
• Description of the credit risk measurement system with:
  o the presentation of indicators and parameters allowing the identification, measurement, and aggregation of credit risks related to operations covered by loan programs, and internal procedures allowing an understanding of the interactions between this risk and other risks to which the company is exposed; o the presentation of indicators and parameters allowing the apprehension and control of concentration risk and residual risk through documented procedures; o the description of procedures allowing verification of the adequacy of loan diversification to the investment policy in loans.
• Description of the proportional quarterly monitoring device on the evolution of the quality of each loan taken individually and the associated guarantees, where applicable, detailing the criteria and levels retained for a potential depreciation of the value of loans and specifying the organizational and/or functional modalities that guarantee that the persons in charge of loan monitoring are not in charge of transactions and risk selection.

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• Description of the credit risk steering device, including the procedures for transmitting information relating to the program (notably the evolution of the latter by comparison with the expected profitability calculated as part of the selection of operations) as well as information (reporting, dashboards) allowing effective surveillance of credit risk and compliance with limits, to the General Manager and/or the Board of Directors, or to the Executive Board and/or the Supervisory Board, and/or to an ad hoc internal committee.
• Description of the internal control device (formalization of the device, resources allocated, coverage of credit activities, etc.)

IV/ Information relating to loan management
The company specifies here whether loan management will be exercised directly or if the use of outsourcing is or is not already planned, envisaged, or foreseeable.
In the affirmative, the conditions of subcontracting are specified, notably the identity of the subcontracting management company, and the outsourcing contract / management mandate must be provided.