Simplified calculation of the capital requirement for interest rate risk for captive insurance or reinsurance undertakings

1. Where Articles 88 and 89 are complied with, captive insurance or captive reinsurance undertakings may calculate the capital requirement for interest rate risk referred to in Article 165 as follows:

(a) the sum, for each currency, of the capital requirements for the risk of an increase in the term structure of interest rates as set out in paragraph 2 of this Article;

(b) the sum, for each currency, of the capital requirements for the risk of a decrease in the term structure of interest rates as set out in paragraph 3 of this Article.

2. For the purposes of point (a) of paragraph 1 of this Article, the capital requirement for the risk of an increase in the term structure of interest rates for a given currency shall be equal to the following:

IR up = sum i MVAL i * dur i * rate i * stress(i,up) - sum lob BE lob * dur lob *rate lob *stress (lob,up)

where:

(a) the first sum covers all maturity intervals i set out in paragraph 4 of this Article;

(b) MVAL i denotes the value in accordance with Article 75 of Directive 2009/138/EC of assets less liabilities other than technical provisions for maturity interval i;

(c) dur i denotes the simplified duration of maturity interval i;

(d) rate i denotes the relevant risk-free rate for the simplified duration of maturity interval i;

(e) stress (i,up) denotes the relative upward stress of interest rate for simplified duration of maturity interval i;

(f) the second sum covers all lines of business set out in Annex I of this Regulation;

(g) BE lob denotes the best estimate for line of business lob;

(h) dur lob denotes the modified duration of the best estimate in line of business lob;

(i) rate lob denotes the relevant risk-free rate for modified duration in line of business lob;

(j) stress (lob,up) denotes the relative upward stress of interest rate for the modified duration dur lob . 

3. For the purposes of point (b) of paragraph 1 of this Article, the capital requirement for the risk of a decrease in the term structure of interest rates for a given currency shall be equal to the following:

IR down = sum i MVAL i * dur i * rate i * stress (i,down) - sum lob BE lob * dur lob *rate lob *stress (lob,down)

where:

(a) the first sum covers all maturity intervals i set out in paragraph 4;

(b) MVAL i denotes the value in accordance with Article 75 of Directive 2009/138/EC of assets less liabilities other than technical provisions for maturity interval i;

(c) dur i denotes the simplified duration of maturity interval i;

(d) rate i denotes the relevant risk-free rate for the simplified duration of maturity interval i;

(e) stress (i,down) denotes the relative downward stress of interest rate for simplified duration of maturity interval i;

(f) the second sum covers all lines of business set out in Annex I of this Regulation;

(g) BE lob denotes the best estimate for line of business lob;

(h) dur lob denotes the modified duration of the best estimate in line of business lob;

(i) rate lob denotes the relevant risk-free rate for modified duration in line of business lob;

(j) stress (lob, down) denote the relative downward stress of interest rate for modified duration dur lob .

4.The maturity intervals i and the simplified duration dur i referred to in points (a) and (c)of paragraph 2 and in point (a) and (c) of paragraph 3 shall be as follows:

(a) up to the maturity of one year, the simplified duration shall be 0.5 years;

(b) between maturities of 1 and 3 years, the simplified duration shall be 2 years;

(c) between maturities of 3 and 5 years, the simplified duration shall be 4 years;

(d) between maturities of 5 and 10 years, the simplified duration shall be 7 years;

(e) from the maturity of 10 years onwards, the simplified duration shall be 12 years.