Question ID: 1269
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 84
Status: Final
Date of submission: 12 Mar 2018
Question
When calculating the SCR, for bond funds that are leveraged, are there any additional penalties for the SCR or does a 2 to 1 leverage simply mean there is twice the SCR?
EIOPA answer
In the following it is assumed that the look-through approach as set out in Article 84 (1) DA is possible.
There is no "multiplication of the capital requirement for the unleveraged fund" as suggested by the question. All the assets and liabilities in the fund have to be included in the calculations of the relevant modules and sub-modules of the standard formula.
In order to see that the effect of leverage is reflected in the capital requirement calculation consider a simple example: The only assets of the fund are bonds, the only liability is a loan with a bank and the insurer holds all units in the fund. The higher the leverage the more exceeds the value of the bonds which are "shocked" in the relevant sub-modules of the market risk module the value of the fund units.