Question ID: 2539
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, 174(5 )
Status: Final
Date of submission: 08 Dec 2022
Question
1 - We have a question regarding the shock to be applied for the civil real estate company (Property). Our interpretation: If the code cic is 32, we apply the equity shock with or without currency risk. In the case where the real estate company has an isin and the cic code is classified as 45, we can look-through and treat it as a fund.
2 - According to the guideline of EIOPA DR 2015-035 ARTICLE 174, that civil real estate companies with CIC code 45 or 32 should be shocked at Equity risk (and not property 25%). is it correct?
EIOPA answer
According to Annexes VI of the Commission Implementing Regulation (EU) 2015/2450 of 2 December 2015, the definition of the code CIC are the following:
The code CIC 32 refers to 'Equity of real estate related corporation' which is defined as 'Equity representing capital from real estate related corporations'.
The code CIC 45 refers to 'Real estate funds' which is defined as 'Collective investment undertakings mainly invested in real estate'.
According to Article 84 of the Delegated Regulation (EU) 2015/35, the Solvency Capital Requirement shall be calculated on the basis of each of the underlying assets of collective investment undertakings and other investments packaged as funds (look-through approach). According to EIOPA's guideline 3 on look-through approach, undertakings should apply the look-through approach where they invest in real estate through collective investment undertakings or other investments packaged as funds. Therefore, in the case where the undertaking invests in an asset with the code CIC 45, it should apply the look-through approach.
Investments with the code CIC 32 can have different features depending on the activities of the related corporation. For this reason, there is no general answer to the question. The appropriate answer needs to be found on a case-by-case basis taking into account the specific features of the investment. For example, in accordance with Article 84(2)(a) of the Delegated Regulation, the look-through approach should be applied to an equity investment in a company that mainly invests in property. As stated in EIOPA's guideline 3 on look-through approach, an equity investment in a company that exclusively provides real estate services falls under the equity risk sub-module.