Question ID: 3114
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: 209(2)
Status: Revised
Date of submission: 27 Jun 2024
Question
Is it possible to explain the formula in Article 209(2)?
"2. Only risk-mitigation techniques that are in force for at least the next 12 months and which meet the qualitative criteria set out in this Section shall be fully taken into account in the Basic Solvency Capital Requirement. In all other cases, the risk-mitigation effect of risk-mitigation techniques that are in force for a period shorter than 12 months and which meet the qualitative criteria set out in this Section shall be taken into account in the Basic Solvency Capital Requirement in proportion to the length of time involved for the shorter of the full term of the risk exposure or the period that the risk-mitigation technique is in force"
EIOPA answer
Step-by-step explanation of how to calculate the proportion according to Article 209(2) of Commission Delegated Regulation (EU) 2015/35 is as follows:
- First, determine the number of months (or another time unit) that the risk-mitigation technique will stay in force from the calculation date up to the end of the SCR 1-year time horizon (=12 months), i.e. the remaining maturity, noted “M_mitigation_relevant=min(M_mitigation, 12 months)".
- Second, determine the remaining maturity of the risk exposure, noted “M_exposure_relevant=min(M_exposure, 12 months)".
- Third, determine the shorter remaining maturity of the two, noted “M_effective". M_effective=min(M_mitigation_relevant, M_exposure_relevant).
- Divide the effective relevant maturity by the 12 months since the full effect is taken into account only for risk mitigation techniques in force at least 12 months. Proportion = M_effective / 12.
If the conditions in Article 209(3) are met, the risk mitigation technique is fully taken into account. In this case, the Proportion is set to 1.