We have studied EIOPA’s Q&A #1690 regarding the recognition of SCR relief for a note that is fully, unconditionally, and irrevocably guaranteed by a credit insurer. Our understanding is that, given the credit insurance on the note: 1. It is not possible to transfer the note from the spread risk sub-module to the CDR module, thereby eliminating the SCR charge in the spread risk sub-module and instead booking an SCR charge in the CDR module based on the credit insurer’s risk parameters. 2. It is not possible to treat the note in the spread risk sub-module by swapping the credit rating of the note with that of the credit insurer. 3. However, it should be possible to incorporate the risk mitigating benefit of the credit insurance by having the note and insurance wrapper rated as a joint package by a nominated ECAI. The insurance wrapper would act as a credit enhancement to the note and, under the assumption that the rating of the insurance provider is higher than the rating of the note, would likely result in a better overall rating. The latter could subsequently be used in the spread risk sub-module for SCR calculations. Q1: Could you please confirm our understanding as indicated above? Q2: We would like to inquire about a different approach to recognising the SCR relief. Namely, is it compliant to treat the financial guarantee (specifically, an NPI) as a credit derivative, in which case the SCR relief would be recognised as for other credit derivatives that meet all the necessary risk mitigation criteria? In simple terms, the insurance contract: • Would be revalued (mark-to-model) under the relevant spread risk shock to the underlying CLO, thereby (partially) offsetting the loss in the value of the CLO. • Would assume an SCR charge in the CDR module as a Type 2 CDR exposure. The above approach rests on the assumption that the institution has the appropriate capabilities and tooling to fully revalue a credit insurance contract (using a mark-to-model approach) given a shock to the underlying asset.