Question ID: 2682
Regulation Reference: Risk-Free Interest Rate - VA calculations, Risk-Free Interest Rate - VA representative portfolios
Topic: Risk Free Rate (RFR)
Article: N/A
Status: Final
Date of submission: 08 Jun 2023
Question
Is it correct that "VA_N_Corps_Comp" for Denmark (DK) almost entirely consists (currently 97%) of the Danish Mortgage Bond Index from Nykredit? And that this ratio at the SII introduction in 2016 was around 70%?
Background of the question
I am trying to calculate the VA for DK
EIOPA answer
The representative portfolios are made up of two parts: 1) a currency portfolio and 2) a country portfolio. Both portfolios consist of a government bond portfolio and a corporate bond portfolio.
The full details of the derivation of the representative portfolios are available in the RFR Technical Documentation (Annex F).
- The currency portfolio consists of all bonds issued in Danish Krone held by all undertakings (not only Danish) reporting under Solvency II. Within the Danish currency corporate bond portfolio 97% of the corporate bonds classify as Financials with a credit quality rating of zero, including the covered bonds which are specific to the Danish bond market and which are tracked by the Nykredit covered bond index.
- The country portfolio consists of all bonds held by Danish insurance undertakings reporting under Solvency. Within the Danish country corporate bond portfolio 87% of the corporate bonds classify as Financials with a credit quality rating of zero, including the covered bonds which are specific to the Danish bond market and which are tracked by the Nykredit covered bond index.
It is our understanding that the increase of the exposures to Financials with zero credit quality rating has mainly been due to rebalancing to these specific covered bonds.