Skip to main content
European Insurance and Occupational Pensions Authority

1543

Q&A

Question ID: 1543

Regulation Reference: (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)

Topic: Other

Article: 197(5)

Status: Final

Date of submission: 13 Mar 2018

Question

The treatment of Article 197(5) is currently unclear with respect to the following:
•    Counterparty default risk exposures within the collateral account are not considered in the adjustment for market risk. It is unclear if, and how a risk adjustment for counterparty default risk should be taken into account in the determination of the risk-adjusted value of collateral;
•    Recoverables from reinsurance contracts itself are subject to market risk (e.g. interest rate risk) as well. It is unclear whether the interest rate risk on the reinsurance recoverable towards the reinsurer should be taken into account in the hypothetical capital requirements for the adjustment for market risk on the collateral of the reinsurance agreement as described in Article 197(5)(a) and 197(5)(b).
•    Article 197(5)(b) describes a situation in which the assets held as collateral are included in the calculation. However, in a funds-withheld situation, the assets held as collateral are on the balance sheet mirrored by a payable towards the reinsurer as a liability. It is unclear whether this liability towards the reinsurer should be included in the hypothetical calculation as described in Article 197(5)(a) and 197(5)(b).

EIOPA answer

First question
The following is based on the assumptions that:
1. the mentioned mortgage loans comply with the requirements set out in Article 191 of the Delegated Regulation; and
2. the collateral meets the requirements in Article 214 of the Delegated Regulation.

Where the mortgage loans have to be included in the calculation of the hypothetical capital requirement for market risk as set out in Article 197(5), they should be covered - where relevant - in the interest-rate and currency risk sub-module.
Second question
Insofar as no specific exemptions are defined in Article 197(5)(a) or (b), recoverables should be included in both calculations."
Third question
No, the mentioned liability should not be considered in the calculation of the hypothetical capital requirement for market risk.