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European Insurance and Occupational Pensions Authority



Question ID: 2472

Regulation Reference: Risk-Free Interest Rate - VA representative portfolios

Topic: Risk Free Rate (RFR)

Status: Final

Date of submission: 03 Aug 2022


Looking at the CIC code definition (Annex IV: Complementary Identification Code (CIC) Table) CIC #12 is considered as Government Bond while in the TS for the VA in the table related to Allocation of the assets (Table 21) CIC #12 is included in the Corporate Portfolio

Is it possible to have a confirmation that for VA calculation CIC #12 is effectively included in the Corporate Portfolio and in case why there is this inconsistency with the definition within Annex IV: Complementary Identification Code (CIC) Table (where CIC #12 is a Governemnt Bond)

Similarly, CIC #13 and #14 are defined as Govies while for VA can be allocated as Govies or Corporate depending on the Issuer: is it possible to know the rationale of such choice?

EIOPA answer

For the construction of the representative portfolios government- and corporate bonds are classified according to their reported credit rating or in case lacking: their assumed credit rating.

  • CIC12-classified bonds are supranational bonds issued by supranational organizations, which in general are created by governments of several countries. Due to the (unknown) composite nature of the underlying issuers the credit risk is assumed to be higher than regular government bonds issued by a single country.
  • CIC13/14-classified bonds are Regional government bonds resp. Local authority bonds. The credit risk in these bonds is assumed to be related to the country of issuance. Depending on the assumed credit risk of the issuing country these bonds are either allocated to the government bond portfolio or corporate bond portfolio.

It is worth mentioning that in general the exposure to such bonds by insurance undertakings is minimal if at all.