| (f) | Eligible risk mitigation |
A bank that adopted the advanced measurement approach for the calculation of the bank's capital requirement relating to operational risk may recognise the risk mitigating impact of insurance, provided that—
(i) the insurance provider—
| (A) | shall have a minimum rating of A, or the equivalent thereof, in respect of its ability to pay claims; |
| (B) | shall be independent from the reporting bank, that is, a third party entity or institution, provided that when a bank obtains insurance through captives or affiliates the bank shall lay off its risk exposure to an independent third-party entity or institution, for example, through reinsurance, provided that the entity or institution that provides the reinsurance shall comply with the eligibility criteria specified in this paragraph (f); |
| (ii) | the insurance policy— |
| (A) | shall have an initial term of no less than one year, provided that when an insurance policy has a residual term of less than one year the bank shall make provision for appropriate haircuts that reflect the declining residual term of the policy, which haircut shall be equal to 100 per cent in respect of policies with a residual term of 90 days or less; |
| (B) | shall have a minimum notice period for cancellation of 90 days; |
| (C) | shall not contain any exclusions or limitations triggered by supervisory actions or, in the case of a failed bank, that preclude the bank, receiver or liquidator from recovering for damages suffered or expenses incurred by the bank, except when an event occurs after the initiation of receivership or liquidation proceedings in respect of the bank, provided that the insurance policy may exclude any fine, penalty or punitive damages resulting from supervisory actions. |
| (iii) | the bank's calculations relating to risk mitigation— |
| (A) | shall duly reflect the bank's insurance coverage; |
| (B) | shall be consistent with the actual likelihood and impact of loss used in the bank's overall determination of its operational risk capital; |
| (iv) | the bank's framework for the recognition of insurance shall be duly documented; |
| (v) | the bank shall adequately disclose its use of insurance for operational risk mitigation purposes; |
| (vi) | by way of appropriate discounts or haircuts, the bank's methodology for the recognition of insurance shall duly capture— |
| (A) | the insurance policy's cancellation terms and residual term; |
| (B) | any uncertainty of payment; |
| (C) | any mismatches in protection; |
| (vii) | the bank's recognition of operational risk mitigation through insurance shall be limited to 20 per cent of the bank's total capital requirement in respect of operational risk, calculated in terms of the advanced measurement approach. |
