In our ongoing interpretation of the calculation of SCR, we have a question regarding the interpretation of the calculation of derivatives used for risk-taking positions, e.g. investments in equity derivatives instead of a direct investment in the given equity.

Our question concerns the calculation of risks and if this, beside the e.g. equity module, should be done in regards to the concentration risk sub-module or the counterparty risk module.

Our interpretation so far is that the risk of these should be calculated in regards of the concentration risk sub-module. This due to the fact that these types of derivatives are not used for risk-mitigation purposes (commission delegated regulation (EU) 2015/35 article 189, 2a and article 210 (definition of risk-mitigation techniques)) and therefore is not applicable to the counterparty risk module. Instead these types of derivatives should be handled in the concentration risk sub-module (commission delegated regulation (EU) 2015/35 article 184, 2d and p. 26 in “The underlying assumptions in the standard formula for the Solvency Capital Requirement calculation”). This is also in accordance with the fact that the derivative in this case gives you an exposure to an asset which, all things equal, should be included in the calculation of the concentration risk.

Could you please confirm this interpretation?