Question ID: 811
Regulation Reference: Guidelines on loss-absorbing capacity of technical provisions and deferred taxes
Status: Final
Date of submission: 26 Oct 2016
Question
Did the formula, calculating the net SCR of groups, take into account the possibility of having a situation where solo undertakings have a gross SCR which is smaller than the net SCR?
Both factors:
[grossSCR(solo;sub-module) - netSCR(solo;sub-module)]
and
[grossSCR(solo) - netSCR(solo)]
can have a negative outcome and can lead to strange results.
It seems logic to take for each of these factors the maximum with 0.
EIOPA answer
The formula in Guideline 17 does not take situations into account where solo undertakings have a gross SCR which is smaller than the net SCR. The factor with [grossSCR(solo) - netSCR(solo)] in the denominator should indeed be subject to a maximum function with zero: if grossSCR(solo) < netSCR(solo), then there is no LAC TP at solo level, the factor should be set to 0 to take this into account.
Nevertheless the factor with the component [grossSCR(solo;sub-module) - netSCR(solo;sub-module)] should not be subject to a maximum function with zero: if grossSCR(solo) > netSCR(solo), but grossSCR(solo;sub-module) < netSCR(solo;sub-module), then this sub-module decreases the difference between the gross SCR(solo) and the net SCR(solo). To apply a maximum function on the sub-module component would unduly nullify this decrease at group level.