banks have a system of weighting exposure for the purposes of calculating reserve ratios.
PROPOSED SCHEME
9
How would such an approach work? The basic idea is to
allocate a percentage weight to each category of risk. This percentage would then be applied to the DML and the resulting figure logged against the
the PMS Business Budget and/or Market Exposure Control. In order to achieve a system which can be easily understood and controlled it is necessary to limit the number of percentage weights to a minimum. Hence our selection of the following weightings: 100%, 25%, 10%, 5%, 0%.
10 Annex A demonstrates the relative position between current practice and the proposed categorisation under the new system.
It shows that overall the new approach involves logging more categories of exposure than under current practice. It is recognised that the choice of individual weightings are largely subjective. However, they were arrived at after prolonged discussion taking into account views of ECGD's most experienced underwriters and claims officers.
11
ECGD would continue to record the full nominal maximum
liability (ie 100% of DML of all categories of exposure) statutory reporting and other accounting purposes.
IMPLICATION FOR "ON/OFF SWITCH"
12 The proposal to dispense with the dividing line between Short and Medium/Long Term exposure before counting against the
market has implications for the operation of the "on/off
switch". Requests to EGC to consider whether cover should be
provided on a market have in the past mainly related to Medium and Long Term business. However, in a number of cases where we
may not wish to restore Medium Term we may nevertheless wish to
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