Question ID: 2253
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Solvency Capital Requirement (SCR)
Article: N/A
Status: Final
Date of submission: 12 Feb 2021
Question
How is the Equity SCR calculated for day trades under Solvency II? Under a dynamic Equity strategy where the equity investments are made subject to certain conditions, but disinvested at the end of each day, is the Equity SCR zero? Is this different if the strategy is an index, which invests in Equity assets and disinvests by the end of each day?
EIOPA answer
The Solvency II Standard Formula SCR calculation requires instantaneous stresses to be applied to the Balance Sheet as it stands at that time. In particular, Article 83 (1) (d) of the Delegated Regulation assumes no management actions during the stress scenarios.
Therefore, if there are equity investments on the Balance Sheet at a point in time, the capital requirement for equity risk should reflect those investments at that point in time, and not make any assumption about planned sales. This holds true both for direct equity investments and for indirect equity investments through index funds.
It seems nevertheless worth to mention the following: According to Article 45(1)(c) Solvency II the undertaking needs to demonstrate in its ORSA the significance with which the risk profile of the undertaking deviates from the assumptions underlying the Solvency Capital Requirement.
In addition and according to Article 45(1)(a) Solvency II the undertaking is required to take into account the undertaking’s specific risk profile when assessing its overall solvency needs.
The ORSA assessment of the overall solvency needs is therefore not subject to how risks are estimated by the standard formula.