We refer to a scenario where a (re)insurance undertaking holds a Note which is fully and irrevocably guaranteed by a specific credit insurance policy issued by a credit insurer which has a rating published by a nominated ECAI, credit step 2.  The credit insurance policy satisfies the requirements of Article 215 of Regulation 2015/35, and is treated by the (re)insurance undertaking as part of its risk mitigation policy.

Answers given by EIOPA to earlier questions suggest that: (a) the existence of the credit insurance policy would not enable the Note to be treated as an exposure to the credit insurer within the counterparty default risk module of the SCR; and (b) the guarantee cannot be taken into account in assessing the rating to be applied to the Note as part of the spread risk sub-module of the market risk module of the SCR.  

(i)    Please could you let us know whether there are any circumstances in which you consider that the counterparty default risk module would apply.  In particular, if the Note is not capable of being transferred by the (re)insurance undertaking then the (re)insurance undertaking is not exposed to any market risk, so including the Note in the market risk module would seem to be inappropriate.  The effect of the credit insurance is very similar to a bilateral credit derivative, in that the only circumstances in which the (re)insurance undertaking would incur a loss would be where there is a default by the counterparty.

(ii)    If the Note itself has to be treated as part of the spread risk sub-module, would you agree that, because of the existence of the credit insurance policy, "the loss in the basic own funds that would result from an instantaneous relative decrease of stress i in the value of the [Note]" for purposes of Article 176(1) of Regulation 2015/35 would be zero.  This would be subject to the counterparty default risk of the credit insurer, which would be determined under the counterparty default risk module.

(iii)    If the Note has to be treated as part of the spread risk sub-module, and you do not agree with our view in question (ii), would you consider that the existence of the rating of the credit insurer, and the fact that the credit insurance policy is issued specifically in relation to the Note payments covering all scheduled interest and principal, means that "a credit assessment exists for a specific issuing program or facility to which the item constituting the exposure [i.e. the Note] belongs" ?  This would mean that, under Article 5(1) of Regulation 2015/35, the Note can be treated as having the ECAI rating of the credit insurer for purposes of the spread risk sub-module.

(iv)    If a rating from an ECAI were to be obtained covering all payments on the Note, and taking into account the credit insurance policy, would you consider that that would be "a credit assessment … for a specific issuing program or facility to which the item constituting the exposure [i.e. the Note] belongs" for purposes of Article 5(1) of Regulation 2015/35 ?  We want to be sure you would not consider that the fact that the ECAI has taken into account the guarantee means that its rating does not apply.

For clarity, we have used the term (re)insurance undertaking to refer to the life insurers who would be investing, to distinguish them from the credit insurers.