An increase in the expenses, like prescribed in the submodule, may for some parts be due to a change in inflation and inflation expectations. Inflation linked investments offset losses due to such increases in inflation. The loss in basic own funds may therefore be lower than the change in technical provisions due to this shock. Can one take account of the risk mitigation of the inflation linked instruments, if they meet the requirements for risk mitigation techniques?

This question has been rejected because the issue it deals with is already addressed in Articles 140 and 212 of Commission Delegated Regulation (EU) 2015/35. Article 140 specifies that the inflation shock of 1 percentage point refers to the expense inflation rate used for the calculation of technical provisions. Pursuant to Article 212, in order for the financial risk mitigation of the inflation linked investments to be recognised, the undertaking should demonstrate, inter alia, that there is no material basis risk stemming from the difference between the expense inflation used for the calculation of technical provisions and the inflation index underlying the inflation-linked investments. Please refer to EIOPA-BoS-14/172 “Guidelines on Basis Risk” and in particular to Guideline 2 for further clarity on how to meet the requirements.