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the following Articles 176a to 176c are inserted: ‘Article 176a Internal assessment of credit quality steps of bonds and loans 1. A bond or loan for which a credit assessment by a nominated ECAI is not available and for which debtors have not posted collateral that meets the criteria set out in Article 214 may be assigned to credit quality step 2 if all of the criteria set out in paragraphs 3 and 4 are met with respect to the bond or loan. 2. A bond or loan for which a credit assessment by a nominated ECAI is not available and for which debtors have not posted collateral that meets the criteria set out in Article 214, other than a bond or loan assigned to credit quality step 2 under paragraph 1, may be assigned to credit quality step 3 if all of the criteria set out in paragraphs 3 and 5 are met with respect to the bond or loan. 3. The criteria in this paragraph are as follows: a) the insurance or reinsurance undertaking's own internal credit assessment of the bond or loan meets the requirements listed in Article 176b; b) the bond or loan is issued by a company which does not belong to the same corporate group as the insurance or reinsurance undertaking; c) the bond or loan is not issued by a company which is an insurance or reinsurance undertaking, an infrastructure entity, a credit institution, an investment firm, a financial institution, an AIFM, a UCITS investment management company, an institution for occupational retirement provision or a non-regulated undertaking carrying out financial activities; d) no claims on the issuing company of the bond or loan rank senior to the bond or loan, except for the following claims: (i) statutory claims and claims from liquidity facility providers provided that those statutory claims and claims from liquidity facility providers are in aggregate not material relative to the overall senior debt of the issuing company; (ii) claims from trustees; (iii) claims from derivatives counterparties; e) the bond or loan provides a fixed redemption payment on or before the date of maturity, in addition to regular fixed or floating rate interest payments; f) the contractual terms and conditions of the bond or loan provide for the following: (i) the borrower is obliged to provide audited financial data to the lender at least annually; (ii) the borrower is obliged to notify the lender of any events that could materially affect the credit risk of the bond or loan; (iii) the borrower is not entitled to change the terms and conditions of the bond or loan unilaterally, nor to make other changes to its business that would materially affect the credit risk of the bond or loan; (iv) the issuer is prohibited from issuing new debt without the prior agreement of the insurance or reinsurance undertaking; (v) what constitutes a default event is defined in a way that is specific to the issue and the issuer; (vi) what is to happen on a change of control; g) the bond or loan is issued by a company that meets all of the following criteria: (i) the company is a limited liability company; (ii) the company has its head office in a country which is a member of the EEA; (iii) more than 50 % of the annual revenue of the company is denominated in currencies of countries which are members of the EEA or the OECD; (iv) the company has operated without any credit event over at least the last 10 years; (v) at least one of the following conditions is fulfilled with respect to each of the last three financial years ending prior to the date on which the Solvency Capital Requirement is being calculated: — the annual turnover of the company exceeds EUR 10 000 000; — the balance sheet total of the company exceeds EUR 10 000 000; — the number of staff employed by the company exceeds 50; (vi) the sum of the company's annual earnings before interest, tax, depreciation and amortisation (“EBITDA”) over the last five financial years is larger than 0; (vii) the total debt of the company at the end of the most recent financial year for which figures are available is no higher than 6,5 times the average of the company's annual free cash flows over the last five financial years; (viii) the average of the company's EBITDA over the last five financial years is no lower than 6,5 times the company's interest expense for the most recent financial year for which figures are available; (ix) the net debt of the company at the end of the most recent financial year for which figures are available is no higher than 1,5 times the company's total equity at the end of that financial year. 4. The yield on the bond or loan, and the yield on any bonds and loans with similar contractual terms and conditions issued by the same company in the previous three financial years, is no higher than the higher of the following values: a) the average of the yields on the two indices determined in accordance with paragraph 6; b) the sum of 0,5 % and the yield on the index that meets the requirement in point (d) of that paragraph. 5. The yield on the bond or loan, and the yield on bonds and loans with similar contractual terms and conditions issued by the same company in the previous three financial years, is no higher than the higher of the following values: a) the average of the yields on the two indices determined in accordance with paragraph 7; b) the sum of 0,5 % and the yield on the index that meets the requirement in point (b) of that paragraph. 6. For the purposes of paragraph 4, the insurance or reinsurance undertaking shall determine, for the bond or loan referred to in paragraph 1, the yield, as at the time of issuance of that bond or loan, on two indices that meet all of the following requirements: a) both indices are broad indexes of traded bonds for which an external credit assessment is available; b) the constituent traded bonds in the two indices are denominated in the same currency as the bond or loan; c) the constituent traded bonds in the two indices have a similar maturity date as the bond or loan; d) one of the two indices consists of traded bonds of credit quality step 2; e) one of the two indices consists of traded bonds of credit quality step 4. 7. For the purposes of paragraph 5, the insurance or reinsurance undertaking shall determine, for the bond or loan referred to in paragraph 2, the yield, as at the time of issuance of that bond or loan, on two indices that meet all of the following requirements: a) both indices meet the requirements set out in points (a), (b) and (c) of paragraph 6; b) one of the two indices consists of traded bonds of credit quality step 3; c) one of the two indices consists of traded bonds of credit quality step 4. 8. For the purposes of paragraph 4, where the bond or loan referred to in paragraph 1 has features, other than those related to credit risk or illiquidity, which materially differ from the features of the constituent traded bonds in the two indices determined in accordance with paragraph 6, the insurance or reinsurance undertaking shall adjust the yield on the bond or loan to reflect those differences. 9. For the purposes of paragraph 5, where the bond or loan referred to in paragraph 2 has features, other than those related to credit risk or illiquidity, which materially differ from the features of the constituent traded bonds in the two indices determined in accordance with paragraph 7, the insurance or reinsurance undertaking shall adjust the yield on the bond or loan to reflect those differences. Article 176b Requirements for an undertaking's own internal credit assessment of bonds and loans The requirements to be met for the purposes of point (a) of Article 176a(3) by an insurance or reinsurance undertaking's own internal credit assessment of a bond or loan shall be as follows: (b) the bond or loan is allocated a credit quality step on the basis of the own internal credit assessment; (c) the insurance or reinsurance undertaking is able to demonstrate to the supervisory authority's satisfaction that the own internal credit assessment, and the allocation of a credit quality step to the bond or loan on the basis of that assessment, are reliable and properly reflect the spread risk of the bond or loan contained in the sub-module specified in point (d) of the second subparagraph of Article 105(5) of Directive 2009/138/EC; (d) the own internal credit assessment takes into account all factors which could have a material effect on the credit risk associated with the bond or loan, including the following factors: (i) the competitive position of the issuer; (ii) the quality of the issuer's management; (iii) the financial policies of the issuer; (iv) country risk; (v) the effect of any covenants that are in place; (vi) the issuer's financial performance history, including the number of years that it has been operating; (vii) the issuer's size and the level of diversity in its activities; (viii) the quantitative impact on the issuer's risk profile and financial ratios of its having issued the bond or loan; (ix) the issuer's ownership structure; (x) the complexity of the issuer's business model; (e) the own internal credit assessment uses all relevant quantitative and qualitative information; (f) the own internal credit assessment, the allocation of a credit quality step on the basis of that assessment and the information used to support the own internal credit assessment is documented; (g) the own internal credit assessment takes into account the characteristics of comparable assets for which a credit assessment by a nominated ECAI is available; (h) the own internal credit assessment takes into account trends in the issuer's financial performance; (i) the own internal credit assessment is procedurally independent from the decision to underwrite; (j) the insurance or reinsurance undertaking regularly reviews the own internal credit assessment. Article 176c Assessment of credit quality steps of bonds and loans based on an approved internal model 1. This Article shall apply in the following circumstances: a) an insurance or reinsurance undertaking has concluded an agreement (“co-investment agreement”) to invest in bonds and loans jointly with another entity; b) that other entity (“the co-investor”) is one or other of the following: (i) an institution as defined in point (3) of Article 4(1) of Regulation (EU) No 575/2013 which uses the Internal Ratings Based Approach referred to in Article 143(1) of that Regulation; (ii) an insurance or reinsurance undertaking which uses an internal model in accordance with Article 100 of Directive 2009/138/EC; c) pursuant to the co-investment agreement, the insurance or reinsurance undertaking and the co-investor invest jointly in bonds and loans for which a credit assessment by a nominated ECAI is not available and for which debtors have not posted collateral that meets the criteria set out in Article 214; d) the co-investment agreement provides that the co-investor shares with the insurance or reinsurance undertaking the probabilities of default produced by its Internal Ratings Based Approach or, as applicable, the credit quality steps produced by its internal model for the bonds or loans referred to in point (c) for the purpose of using that information for the calculation of the Solvency Capital Requirement of the insurance or reinsurance undertaking. 2. If all of the criteria set out in paragraphs 3 to 6 are met, the bonds and loans referred to in point (c) of paragraph 1 shall be assigned to credit quality steps determined as follows: a) in a case where the co-investor falls within point (i) of paragraph 1(b), credit quality steps shall be determined on the basis of the most recent probabilities of default that the Internal Ratings Based Approach has produced; b) in a case where the co-investor falls within point (ii) of paragraph 1(b), credit quality steps shall be the credit quality steps produced by the internal model. 3. The criteria in this paragraph are as follows: a) the issuer of each bond or loan does not belong to the same corporate group as the insurance or reinsurance undertaking; b) the issuer is not an insurance or reinsurance undertaking, an infrastructure entity, a credit institution, an investment firm, a financial institution, an AIFM, a UCITS investment management company, an institution for occupational retirement provision or a non-regulated undertaking carrying out financial activities; c) the issuer has its head office in a country which is a member of the EEA; d) more than 50 % of the issuer's annual revenue is denominated in currencies of countries which are members of the EEA or the OECD; e) at least one of the following conditions is met for each of the last three financial years ending prior to the date on which the Solvency Capital Requirement is being calculated: — the annual turnover of the issuer exceeds EUR 10 000 000; — the balance sheet total of the issuer exceeds EUR 10 000 000; — the number of staff employed by the issuer exceeds 50. 4. The criteria in this paragraph are as follows: a) the co-investment agreement defines the types of bonds and loans to be underwritten, and the applicable assessment criteria; b) the co-investor provides the insurance or reinsurance undertaking with sufficient details of the underwriting process, including the criteria used, the organisational structure of the co-investor and the controls conducted by the co-investor; c) the co-investor provides the insurance or reinsurance undertaking with data on all applications for bonds and loans to be underwritten; d) the co-investor provides the insurance or reinsurance undertaking with details of all decisions to approve or reject applications for bonds and loans to be underwritten; e) the co-investor retains an exposure of at least 20 % of the nominal value of each bond and loan; f) the underwriting process is the same as the underwriting process followed by the co-investor for its other investments in comparable bonds and loans; g) the insurance or reinsurance undertaking invests in all bonds and loans of the types referred to in point (a) for which the co-investor decides to approve the bond or loan application; h) the co-investor provides the insurance or reinsurance undertaking with information that allows the undertaking to understand the Internal Ratings Based Approach or, as applicable, internal model and its limitations, as well as its adequacy and appropriateness, in particular: (i) a description of the Internal Ratings Based Approach or, as applicable, internal model, including the inputs and risk factors, the quantification of risk parameters and the underlying methods, and the general methodology applied; (ii) a description of the scope of the use of the Internal Ratings Based Approach or, as applicable, internal model; (iii) a description of the model validation process and of other processes which allow the model's performance to be monitored, the appropriateness of its specification to be reviewed over time, and the results of the Internal Ratings Based Approach or, as applicable, internal model to be tested against experience. 5. In a case where the co-investor falls within point (i) of paragraph 1(b): a) the insurance or reinsurance undertaking clearly documents to which credit quality step the probability of default produced by the institution's Internal Ratings Based Approach corresponds; b) the mapping of probabilities of default to credit quality steps carried out by the insurance or reinsurance undertaking ensures that, for the bond or loan in question, the resulting level of capital requirement for the spread risk sub-module referred to in point (d) of the second subparagraph of Article 105(5) of Directive 2009/138/EC is appropriate; c) the mapping is based on Table 1 in Annex I to Commission Implementing Regulation (EU) 2016/1799 (*5); d) adjustments are made in a prudent manner to the probabilities of default before the mapping is carried out, taking into account the qualitative factors set out in Article 7 of Implementing Regulation (EU) 2016/1799; e) an adjustment to the probabilities of default is made in either of the following situations: (i) the time horizon covered by the Internal Ratings Based Approach deviates significantly from the 3-year time horizon set out in Article 4(2) of Implementing Regulation (EU) 2016/1799; (ii) the definition of default used in the Internal Ratings Based Approach deviates significantly from the one set out in Article 4(4) of that Implementing Regulation. 6. In a case where the co-investor falls within point (ii) of paragraph 1(b), the internal model ensures that, for the bond or loan in question, the resulting level of capital requirement for the spread risk sub-module referred to in point (d) of the second subparagraph of Article 105(5) of Directive 2009/138/EC is appropriate. (*5) Commission Implementing Regulation (EU) 2016/1799 of 7 October 2016 laying down implementing technical standards with regard to the mapping of credit assessments of external credit assessment institutions for credit risk in accordance with Articles 136(1) and 136(3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council (OJ L 275, 12.10.2016, p. 3)’;"