Structured Loss Absorption (S.L.A.©)
Structured Loss Absorption — S.L.A.© — is Swissdacs' proprietary methodology for engineering where, and in what order, a credit portfolio absorbs loss. It is the discipline that turns a precise measurement of risk into a defensible, capital-efficient structure.
Why the order of loss matters
How much capital a portfolio ties up is not decided by its total exposure alone — it is decided by where the losses fall and who absorbs them. The same book can require very different capital depending on how its loss is layered: what the institution retains, what is protected, and what residual tail remains. Most portfolios are never engineered this way; loss simply lands wherever the structure happens to put it. S.L.A.© makes that placement deliberate.
The three layers
S.L.A.© defines a portfolio's loss in clear, ordered layers:
- Retained first loss — the initial, expected layer the institution keeps. Excluding this perimeter, rather than tranching it, keeps the structure inside recognised risk-mitigation categories.
- Protected layer — the band covered by recognised risk transfer, typically credit protection from rated insurers, applied proportionally.
- Residual tail — the remote, severe layer that must still be held, sized precisely to the confidence level the institution targets.
Each layer is defined, not assumed — and the boundaries between them are calibrated, not negotiated after the fact.
Calibrated by Harmonia©
S.L.A.© is only as strong as the calibration behind it. Swissdacs' deterministic engine, Harmonia©, derives the layers from the portfolio's own behaviour: it stresses the book to a high level of confidence — to the order of 99.9% — and reads back the loss structure that confidence implies. The retained, protected and residual layers fall out of that calibration, every figure traceable and reproducible. There is no model drift and no hidden assumption; the same inputs always produce the same structure.
Recognised risk transfer, done properly
The protected layer works only if the risk transfer behind it is recognised. S.L.A.© pairs the structure with cover from rated insurers and keeps the arrangement proportional and within the prudential framework the institution already operates under. Recognised risk transfer then does exactly what it is designed to do — no more, and no less.
Defensible by construction
Because every layer is calibrated rather than assumed, an S.L.A.© structure is defensible line by line: the calibration logic sits separate from, and in support of, the regulatory arithmetic, and the structure stays inside recognised categories. The result can be defended layer by layer, in front of a regulator, an auditor and a treasury committee.
A proprietary methodology of Swissdacs
Structured Loss Absorption (S.L.A.©) is proprietary to Swissdacs GmbH and is applied through Harmonia©. To see S.L.A.© applied to a portfolio, visit swissdacs.com or contact info@swissdacs.com.