Product

Absolute Expected Loss

Improves accuracy and effectiveness of forecasting, reserving, portfolio management, credit decisioning, and pricing
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Product Overview

Current Expected Credit Loss (CECL) regulations (FASB 825-15) that change the loan loss reserve estimation to lifetime Expected Loss (EL) pose challenges to optimizing loan loss reserves—a critical objective for financial institutions. A key component in calculating EL is Loss Given Default (LGD), the estimation of the probable recovery of a realizable asset if a default occurs. Our Absolute Expected Loss model provides powerful, consistent, and objective LGD estimates at a contract level.
Solution

Look Around Corners

The U.S. Financial Accounting Standards Board (FASB) standards focusing on Current Expected Credit Losses (CECL) shift the way financial institutions view and analyze risk of future losses. The standards emphasize a forward-thinking model forecasting loss over the life of a loan using historical and current information rather than occurred and observable evidence of credit loss. Our Absolute Expected Loss Model is an innovative approach for estimating Expected Loss (EL) to meet CECL standards.

How We Help You Meet New Guidelines

1
New guidelines present new challenges

FASB Current Expected Credit Loss (CECL) has new standards for understanding and provisioning Expected Loss (EL) but doesn't prescribe a specific model.
 

2
A model to meet the standards

A simple, precise, and quantitatively sound methodology to meet EL standards is the Probability of Default (PD)/Loss Given Default (LGD) methodology. The simplicity of this quantitative methodology is the conceptual framework of the solution.

3
Equifax AbsolutePD Model data powers EL solution

The Equifax AbsolutePD® Model employs statistical techniques to estimate likelihood of default providing predictions based on borrower-by-borrower payment histories.
 

4
A bottom-up approach to estimating loss

Equifax’s Absolute Expected Loss Model is comprised of three independently developed  underlying models. This forward-looking model provides a bottom-up approach based upon the basic foundation of EL as the product of PD and LGD.

Key Benefits

A structured decisioning framework

Improve accuracy and effectiveness of forecasting and credit decisioning.
 

Spot troubled accounts

Perform bottoms up (contract level) calculation of expected loss.

Tackle risk earlier

Guide loss mitigation to take action earlier in the default cycle and lower losses.

Complement your collections efforts

Leverage Absolute Expected Loss's accurate default analysis and tracking.

Know where your risk is

Understand loss risk by collateral type, geography, business unit, transaction size.
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White Paper

Quantitative precision for CECL

Equifax’s Absolute Expected Loss Model provides insight for optimal loss reserve along with valuable information about institutional portfolios. Because estimates are given at the obligation level, the model output can accurately rank order individual borrowers and aid in portfolio risk management. Download our white paper to learn more about how our Absolute Expected Loss Model can help you determine prudent and defensible reserves for losses.
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