Question ID: 1413
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 175
Status: Final
Date of submission: 12 Mar 2018
Question
Could you please explain how to calculate correctly the spread SCR for a not rated bond with duration = 1? If we understand the regulation correctly, it would mean that not rated credit institutions and insurance companies are assumed to be more risky thank corporates? (Despite the far tougher supervision of the financial institutions). If our understanding is correct, could you please explain the reasons for this?
EIOPA answer
Unless the bond is a qualifying investment in infrastructure or any of the provisions in Article 180 apply, the spread risk charge for a bond for which a credit assessment by a nominated ECAI is not available should be determined in accordance with Article 176(4) or (5) of Commission Delegated Regulation (EU) 2015/35 as applicable. In case Article 176(4) is applicable the risk factor stressi for a bond with a modified duration of one year is 3 %.
For a bond to an insurance or reinsurance undertaking for which a credit assessment by a nominated ECAI is not available and where this undertaking meets its Minimum Capital Requirement, the risk factor shall be determined in accordance with Article 180(4). Depending on the solvency ratio the resulting risk factor can be higher or lower than those set out in Article 176(4). For a solvency ratio of 100 % and a modified duration of 1 the resulting risk factor is
2.5 % + 22/(122-95)*(4.5 %-2.5 %)=4.13 (rounded).
The same risk charge for a modified duration of one year would apply if Article 180 (8) was applicable.