Question ID: 1815
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 188
Status: Final
Date of submission: 08 May 2019
Question
I would like to know if I am correct about the calculation method of the currency exchange risk. If I understood it correctly, a Type-1-Equity would be stressed by 25% on its market value, independent from its actual currency exchange rate. So, an equity with market value 100.000 would result in a currency risk of 25.000. The factor of 25% would only be changed if the currency is pegged to the Euro.
Furthermore, the diversification effects of the currency risk will also affect all other risk categories, ignoring the fact that there is for example no property in a foreign country. So, if we bought one Type-1-Equity which is mainly listed in another country, all other risks would be affected too, which does not make any sense to me.
Is it possible to set these parameters to zero in this special case?
EIOPA answer
Please note that, as elaborated in Article 188(2) of Commission Delegated Regulation (EU) 2015/35, the currency risk module establishes a capital requirement for an increase or decrease in value of the foreign currency against the local currency. The factor for this increase or decrease is in fact 25% 188(3).
In turn, the correlation coefficients of Article 164(3) establish some diversification effects between the capital requirement for currency risk and the capital requirements for other, non-currency related, market risks