Question ID: 2461
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: 84
Status: Final
Date of submission: 13 Jul 2022
Question
The alternative investment fund (leveraged AIF) denominated in EUR holds a number of portfolio investments globally and has taken out debt at the level of the fund. No further look-through is necessary for the investments in the leveraged AIF and they belong to the type 2 equities, as answered in Q&A 1212. It is not very clear, however, whether we still need to look through to identify any unhedged currency component that would fall under the currency sub-module? The fund itself is EUR denominated. And how exactly should we do it in complex cases where look through isn't available given portfolios complexity, or where number of iterations is not sufficient to see unhedged currency component (e.g. hedge fund, or fund of fund)?
EIOPA answer
As stated in Article 84 of the Delegated Regulation (EU) 2015/35 and detailed in Q&A 1212, a look-through has to be applied to the AIF and the investments have to be included in the calculation of the capital requirement for type 2 equities, and potentially currency risk. It is needed to look-through to identify any unhedged currency component that would fall under the currency sub-module.
According to the guideline 2 on look-through approach, undertakings should perform a sufficient number of iterations of the look-through approach, where appropriate (e.g. where a fund is invested in other funds) to capture all material risk.
In case a look-through approach cannot be applied, please refer to the Article 84(3) of the Delegated Regulation (EU) 2015/35.