Question ID: 832
Regulation Reference: Guidelines on loss-absorbing capacity of technical provisions and deferred taxes
Article: 35
Template: S.26.01
Status: Final
Date of submission: 15 Feb 2017
Question
The guideline 17 indicates a formula to be applied per sub-module. For equity risk, must the formula be applied separately for equity type 1 and equity type 2? Or shall it be applied at equity risk level (ie after diversification)? If the last case is the right one, report S.26.01 may display "inconsitent" numbers.
Same question for IR risk: must the formula be applied separately for upward IR risk and downward IR risk?
EIOPA answer
For the equity risk sub-module, the formula must be applied separately for equity type 1 and equity type 2: article 168(1) of the Delegated Regulation (EU) 2015/35 provides that there are two sub-modules. This is reflected in QRT S.26.01.
For sub-modules which require the application of several scenarios (for instance: up and down for the interest rate risk), the explanatory text 2.9 of guideline 17 provides the step to follow: the LAC at individual level in the sub-module should be (re)calculated taking into consideration the scenario relevant at group level (see Guideline 16) and step (d) would consist of the following calculations:
1. calculation of gross SCR solo and net SCR solo at sub-module level for up and down scenarios of each (re)insurance undertakings in the scope;
2. calculation of the gross group SCR for all required scenarios (up and down) (=> grossSCR(group, sub-module, up) and grossSCR(group, sub-module, down));
3. application of the formula in Guideline 17for up and down scenarios; this step gives a netSCR(group, sub-module, up) and a netSCR(group, sub-module, down);
4. selection of the scenario relevant at group level, depending on the outcome of the previous step;
Please refer to page 22 of the final report on the group solvency guidelines: https://eiopa.europa.eu/Publications/Guidelines/Final_Report_LAC_GLs.pdf