Methodology note
Unrated holdings: not evaluated, below minimum, excluded or mapped
An unrated holding has no grade to compare with a credit floor. A rule can wait for a rating, count the holding as below the minimum, exclude it, or treat it as a mapped grade. The choice can swing a result from compliant to breach, so it belongs in the policy, not in a default nobody chose.
The four treatments
| Treatment | Effect |
|---|---|
| Not evaluated (default) | The rule waits for a rating; nothing is assumed |
| Below the minimum | The holding counts against the limit |
| Exclude | The holding leaves the measure entirely |
| Mapped grade | The holding takes a grade the organisation names |
The organisation sets the treatment, and a rule may state its own.
Same book, different answers
Take a book with 920 rated AA and 80 unrated, against a 5% cap on holdings below BBB-. Not evaluated leaves the rule open, and below minimum reads 8% and breaches.
Excluding the unrated holding reads 0% and passes. A mapped grade of BB behaves like below minimum here, because BB is under the floor.
Pitfall: exclusion hides risk
Excluding unrated bonds makes the limit easier to meet and hides a real exposure. Instruments unrated by nature, such as cash funds, are better handled as an exempt class.
A policy can say that unrated bonds count as below investment grade. That is the below-minimum treatment; see the clause.
Rating distribution buckets
The rating distribution template handles unrated weight differently. Its reserved value __unrated__ turns unrated holdings into a bucket with its own band.
A 10% cap on the unrated bucket then reads the unrated weight directly, instead of leaving the rule open.
Worked example
With unrated holdings counted as below the minimum, the 80 unrated bond is 8% of the book and breaches a 5% cap.
Rule template:credit_quality minimumGrade: BBB-unratedTreatment: below_minimum
Bounds: hard max 5%
| Holding | Market value | RATING_SP |
|---|---|---|
| AA-rated bonds | 920 | AA |
| Unrated bond | 80 | (blank) |
| Rating providers | Split ratings | Watch / outlook notching |
|---|---|---|
| SP (RATING_SP) | median | off |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Credit quality | Breach | 8% | ≤ 5% | -3% | ABOVE_HARD_MAXIMUM |
ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
Largest contributors: Credit quality → Unrated bond 8%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
Questions
Which treatment applies by default?
Not evaluated, unless the organisation states another. The result discloses whether the treatment came from the organisation's policy or a provisional default.
Is mapping unrated bonds to a grade prudent?
It can be, if the grade is conservative and documented. A mapped grade below the floor behaves like counting the holding as below the minimum.