Application of the spread risk scenarios to matching adjustment portfolios

Where insurance undertakings apply the matching adjustment referred to in Article 77b of Directive 2009/138/EC, they shall carry out the scenario based calculation for spread risk as follows:

(a) the assets in the assigned portfolio shall be subject to the instantaneous decrease in value for spread risk set out in Articles 176, 178 and 180 of this Regulation;

(b) the technical provisions shall be recalculated to take into account the impact on the amount of the matching adjustment of the instantaneous decrease in value of the assigned portfolio of assets. In particular, the fundamental spread shall increase, by an absolute amount that is calculated as the product of the following:

(i) the absolute increase in spread that, multiplied by the modified duration of the relevant asset, would result in the relevant risk factor stress i , referred to in Articles 176, 178 and 180 of this Regulation;

(ii) a reduction factor, depending on the credit quality as set out in the following table (see here for the table).

For assets in the assigned portfolio for which no credit assessment by a nominated ECAI is available, the reduction factor shall be equal to 100 %.