Question ID: 2530
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: 201(2)
Status: Final
Date of submission: 20 Nov 2022
Question
The calculation for Vinter requires a sum over all combination of Probability of Default for single name exposures an insurer has (as per Art 199).
However, in some cases the PoD can be 0 but this results in the associated Vinter formula for PoD j and k of 0 with a division calculation with denominator of 0 and hence an invalid mathematical result.
We presume the Vinter calculation should exclude this case i.e. Article 200(2)(a) could read:
"the sum covers all possible combinations (j,k) of probabilities of default on single name exposures in accordance with Article 199, excluding the case where j and k = 0;" (i.e. with ", excluding the case where j and k = 0" appended to that sentence).
EIOPA answer
When calculating the term Vinter of the variance of the loss distribution of type 1 exposures in accordance with Article 201 of the Delegated Regulation (EU) 2015/35, the terms (PDk * (1-PDk) * PDj * (1-PDj) )/ (1,25 * (PDk + PDj) – PDk * PDj ) where both PDk and PDj are zero should be considered to be equal to zero.