Material basis risks or other risks are only reflected in the calculation of the SCR in the SF if they are covered by any of the modules of the SF. Basis risks cannot be reflected in the SF SCR by adjusting the risk mitigating effect of the risk-mitigation technique.

This implies that only material basis risk from a currency mismatch can be reflected in the SF SCR, if the requirements of Article 86 are met.

Some examples:
◦A 50% quota share reinsurance can meet the requirements of Article 210(2), since the remaining 50% of the risks are reflected in the different modules of the SF. This also follows from paragraph 1.12 of Guideline 2 that states that where the terms and conditions of a risk-mitigation technique specify a cap on the maximum loss protection as a proportion of the initial exposure, undertakings should apply the assessment only to the proportion covered by the risk-mitigation technique when determining whether the basis risk is material.
◦Full or partial reinsurance in a different currency than the underlying risks can meet the requirements of Article 210(2), as the remaining currency risk is reflected in the currency risk module of the SF, if the SCR is calculated according to Article 86.
◦A risk-mitigation technique with material basis risk cannot meet the requirements of Article 210(2), even if the risk-mitigating effect of the risk-mitigation technique would be adjusted to reflect this material basis risk in the SF. For example:
◾If longevity risk of 100 is mitigated by an index-based instrument that would result in 0 SF SCR for longevity, while 20 basis risk remains, then the risk-mitigating effect of 100 cannot be adjusted to 80 to reflect this basis risk.
◾If mass lapse risk calculated according to the SF of 100 is mitigated by an stop-loss agreement on the actual portfolio which covers only the scenario used in SF SCR, while according to a comprehensive set of risk scenario´s (including the SF scenario) reflecting the actual risk 30 basis risk remains, then the risk/mitigating effect of 100 cannot be adjusted to 70 to reflect this basis risk.

The above risk mitigation techniques could qualify under a (partial) internal model provided that all the requirements for internal models including the requirements for risk-mitigation techniques in internal models are met.