The Pfandbrief 2011 | 2012

Spread and counterparty risk
The equivalent under Solvency II to credit risk in banking regulation is spread and counterparty
default risk. However, securities assigned to spread risk do not have to be allocated to
counterparty default risk or vice-versa. The spread risk reflects the risk of the widening of
credit spreads. It thus describes the changes in market value resulting from an increase in the
yield differential above the risk-free yield curve. The spread risk applies to the majority of the
interest-based securities in the portfolio, including asset-backed securities and credit risks
transferred via credit derivatives. The counterparty default risk, in contrast, covers the counterparty
risks of derivatives and other risk-mitigating agreements as well as all securities that are
not allocated to the spread risk. The latter item primarily relates to mortgage and insurance
policy loans that have been granted.
Both Public Pfandbriefe and Mortgage Pfandbriefe are subject to spread risk. In contrast to
all other interest-bearing securities allocated to spread risk, the risk factors for Pfandbriefe in
QIS5 were lower. However, this is only the case for covered bonds as defined in the Directive
on Undertakings for Collective Investment in Transferable Securities (UCITS) that have a AAArating.
This is intended to reflect the particularly high level of safety offered by these securities.
In QIS5, the capital requirement for a Pfandbrief designed as a zero-coupon bond with a
maturity of 10 years was around 6%. This requirement is thus around three percentage points
lower than that for an unsecured corporate bond with the highest credit rating, for which
around 9% of the market value had to be deposited (cf. figure 1).
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Fig. 1:
Spread risk: Capital requirement as percentage of debt instrument
on market value basis
Spread risk I
Corporate bond (AAA) Pfandbrief (AAA)
35%
30%
25%
20%
15%
10%
5%
0%
1 2 3 4 5 6 7 8 9 10 15 20 30 40 50
Maturity (years)