Related to the computation of the SCR when an insurance buy a protection (PUT) on equity.

First, with respect to the SCR calculation the relevant sub-modules of the market and counterparty default risk modules need to be identified. In this regard, a put option on equity is usually sensitive to interest rate risk, equity risk and counterparty default risk and potentially to currency risk. Accordingly, including the put option in the calculation of these sub-modules should be considered.

Second, it should be assessed if the put option meets the requirements for risk mitigation techniques set out in Articles 208, 209, 210 and 212 of Delegated Regulation (EU) 2015/35 (DR). EIOPA's Guidelines on basis risk and particularly Guideline 2 should be taken into account in that assessment. Only if the put option on equity complies with the requirements for risk-mitigation techniques, its risk mitigating effect should be considered in the equity risk sub-module of the standard formula.

In particular, if the put option has a maturity of less than one year, then Article 209(2) and Article 209(3) DR should be considered. If Article 209(3) DR does not apply, the risk-mitigating effect of the put option should only be considered partially in accordance with Article 209(2) DR.

Third, in the SCR calculation the put option needs to be revalued in the stressed scenarios. In particular, this involves a mark-to-model valuation of the put option under the stressed scenario. In accordance with Guideline 4, paragraph 1.15, of E
IOPA's Guidelines on the treatment of market and counterparty risk exposures in the standard formula , insurance and reinsurance undertakings should ensure that the values of assets before the stresses obtained by using a mark-to-model valuation are consistent with the quoted market prices of relevant assets in active markets. For a put option on equity this usually means that an implied volatility needs to be derived before the stress and that the put option is revalued under the stressed scenario with a mark-to-model valuation keeping the implied volatility constant during the stressed scenario. In particular, note that a revaluation of the put option under the stressed scenario only by means of the intrinsic value of the put option would not be in line with a market-consistent -valuation.