Question ID: 1188
Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Article: 35, 191
Template: S.26.02
Status: Final
Date of submission: 13 Jun 2017
Question
Please allow me to consult your expertise on the following question w.r.t. QRT S.26.02 (counterparty default risk):
“For cell R0500/C0090 (losses stemming from type 2 mortgage loans), should the value reflect the P&L loss during the reported period or the market value decrease during the reported period?”
In the log-file, we do not find further clarifications:
"Further details on mortgages:
Losses stemming from type 2 mortgage loans - Amount of the overall losses steaming from mortgage loans that has been classified as type 2 exposures according to article 191 (13) of Delegated Regulation (EU) 2015/35.
EIOPA answer
The "Losses stemming from type 2 mortgage loans" should include only losses due to credit risk. This means in particular that changes in the value in accordance with Article 75 Solvency II due to changes in interest rates should not be taken into account.
Rationale: The criteria set out in Article 191 Par. 2 to 12 aim to reduce the credit risk of the mortgage loan. At least some of them are subject to interpretation. With the appropriate information it is possible to check whether qualifying mortgages really have a low credit risk. If one would measure loss as a change in the value in accordance with Article 75 Solvency II, credit losses could for years be masked by gains from falling interest rates. It seems also worth mentioning that the difference between the treatment in terms of capital requirements between qualifying mortgages and other mortgages is not in the interest rate risk but in the credit risk.
Therefore only the losses resulting from credit risk should be reported.