Question ID: 417
Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Article: 35
Template: S.25.01
Status: Final
Date of submission: 10 Dec 2015
Question
1) We require clarification on the 3 methods of aggregation which are detailed in the S.25.01 log and further in the “Guidelines to Ring Fenced Funds” paper released by EIOPA (also included in the appendix below). Could you please provide more details as to the differences between the three methods? Specifically we would like to clarify how the risk modules of the ring fenced funds are consolidated up to the solo entity level S.25.01 form under each of the three methods. A worked example would help clear up any confusion.
2) With regards to the “q-factor” in the S.25.01 log:
a) Could you please clarify whether the formula is correct? The omission of ‘diversification’ (C0030/R0060) from the denominator means that the adjustment will be scaled up / down when apportioned across the risk modules and will not be equal to the total adjustment applied (C0100/R0120).
b) Further this adjustment is calculated using the ‘Net’ figures in column C0030 but then applied to the gross figures (C0040) to arrive at the final SCR. Could you please confirm whether this is correct, or should the adjustment be calculated using the gross figures?
EIOPA answer
The full method implies a full recalculation of the SCR without considering any loss of diversification, i.e. without calculating any RFF’s nSCR but calculating the SCR for the undertaking as a whole. These values would be the starting point for the adjustment (calculation of the q-factor), which is the same in all three cases.
If the simplification at risk module level is applied, instead of recalculating the SCR for the undertaking as a whole, nSCR at risk module level shall be summed up. This means that each capital requirement for each risk module for the whole undertaking is to be approximated summing up the capital requirement of such risk module for each RFF and the remaining part. Therefore these values would reflect only the diversification effects at risk module level, but not the diversification effects at lower levels. Again, this values would be the starting point for the adjustment (q-factor), which is always the same.
If the simplification at risk sub-module level is applied, the same procedure than for the other simplification applies, but in this case the aggregation must be done at risk sub-module level instead of at risk module level. Therefore, these values would reflect only the diversification effects at risk module and risk sub-module level, but not the diversification effects at lower levels. As in the other two cases, these values would be the starting point for the adjustment (q-factor), which is always the same.
Correct, the sum of the apportioned adjustment (C0050) is not equal to the total adjustment (C0100/R0120). We need to remember that the rationale for this adjustment is that the result of the application of the correlation matrix to the adjusted capital requirements of each risk module results in the real SCR of the undertaking.
Correct, there’s a typo in the LOG file, the adjustment shall be calculated using gross figures (C0040).