There has been some debate on whether the risk margin should be shocked under currency risk, with some taking the view that the risk margin should be allocated to currency in line with the currency of the Solvency II best estimate and shocked accordingly. In addition, guidance from Lloyds of Londons indicates that the risk margin should be included under the currency risk sub-module. One view is that it should not be included under this sub-module. In particular, Article 83 of the Commission Delegated Regulation states the following: "Where the calculation of a module or sub-module of the Basic Solvency Capital Requirement is based on the impact of a scenario on the basic own funds of insurance and reinsurance undertakings, all of the following assumptions shall be made in that calculation: (a) the scenario does not change the amount of the risk margin included in technical provisions;" Further, Article 37 ("Calculation of the risk margin") states the following: "the basic risk-free interest rate r(t + 1) shall be chosen in accordance with the currency used for the financial statements of the insurance and reinsurance undertaking". As such, this would indicate to us that the regulations did not anticipate that the risk margin should be allocated to a set of currencies in line with the best estimate as suggested above.

The risk margin should not be included in the calculation of the capital requirement for currency risk. This is in line with Article 83(1)(a) of Commission Delegated Regulation (EU) 2015/35. 

All assets, including any that are deemed to be backing the technical provisions, which are not denominated in the local currency or in the Group currency have to be included in the calculation of the capital requirement for currency risk.