Question ID: 1894
Regulation Reference: (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
Topic: Solvency Capital Requirement (SCR)
Article: NA
Status: Final
Date of submission: 28 Mar 2019
Question
We have noticed that undertaking has made different interpretations on how to calculate the SCR for market risk. For traditional insurance, the SCR for type-1 equity is 39% of the market value +(-) the S.A but how should the undertaking calculate the equity risk if they only have it as a UL? Some firms claims that the risk is held by the client and therefore should not have any SCR, some say it should be 39% of the fees times AUM. Others include future profits while others dont. I have been looking at the Directive, DR, the guidelines and the SRP handbook without getting a clear answer to this question. How should look-through be reviewed if it is an interest rate fund held by the client and on what basis should SCR on spread risk be made? This and many other questions are being raised and in order for us to make a harmonised review, we would appreciate for some advice and also, if possible, receive experience from other supervisors.
Background of the question
Guideline on SCR for market risk for Insurance with Unit-Link products
EIOPA answer
The market risk capital calculation should generally be based on the change in own funds under each component stress. For example, if the technical provisions for a UL product includes allowance for future management charges or fees, then the change in those future amounts arising from a change in the value of equities should be included when calculating the equity risk submodule. Similarly, if spread risk is applied to the assets within an interest rate fund, the calculation of the spread risk submodule should look at the change in value of those assets and the change in value of the technical provisions from the resulting change in the value of those assets.