Investment Bonds and Securities Loss Rates for Credit Risk Under CECL

ARCSys' CECL methodology determines monthly loss rates for investment portfolios using Discounted Cash Flow (DCF) calculations. Rates are based on long-term loss data from ARCSys or external default and recovery rates specific to the asset type. For Corporate Bonds and Municipals, historical annual default and recovery rates from sources like S&P and Moody's are used. Loss rates are calculated by multiplying long-term default rates by the non-recovery rate (1 minus the recovery rate). These rates are applied across A, B, C, and Non-Rated tiers. Clients can use a range of rates for pools or break them down by individual risk rating. The document provides detailed rates for Corporate Bonds (Global and U.S.), Municipal Bonds, Private Mortgage-Backed Securities (MBS), Private Asset-Backed Securities (ABS), and Private Commercial Mortgage-Backed Securities (CMBS). The paper outlines specific approaches for different asset classes.