Question ID: 2455
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: Article 5
Status: Rejected
Date of submission: 05 Jul 2022
Question
My question is w.r.t the Article 5, point 2 a and b, where it mentions to use the issue level rating primarily and if not available it should use the issuer level rating, however can the user choose between either 1) to let the unrated issue go as it is and calculate the spread risk of CQS 8th step (for unrated issue) or 2) should it mandatorily use the issuer level rating (if available) as the 2nd option and calculate the capital charge or 3) can the user see where it can achieve less capital charge i.e. by unrated issue or issuer rating and then decide which one to pick, does this third option available for an user or do he/she have to choose from 1) or 2) always?
Background of the question
My confusion is around the article 5 within that point 2 and sub point a and b.
EIOPA answer
This question has been rejected because the issue it deals with is already explained in Article 5 of the Commission Delegated Regulation (EU) 2015/35. That provision does not give a choice, as described in the question, to insurance and reinsurance undertakings when they determine the credit quality step of an exposure. In case no credit assessment for a specific issuing program or facility to which the item constituting the exposure exists, undertakings should determine the credit quality step in accordance with paragraph 2 of that Article. That paragraph sets out conditions for the use of credit assessments for issuing programs and facilities to which the item constituting the exposure does not belong and for general credit assessments for the issuer. Only if those conditions are not met, the undertaking should, in accordance with the last sub-paragraph of that paragraph 2, consider the exposure unrated.