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European Insurance and Occupational Pensions Authority

Simplified calculation for spread risk on bonds and loans

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TITLE I > CHAPTER V > SECTION 1 > SUBSECTION 6

Article number:  104

Where Article 88 is complied with, insurance or reinsurance undertakings may calculate the capital requirement for spread risk referred to in Article 176 of this Regulation as follows:

SCR_bonds = MV^bonds * (sum_i %MV^bonds_i * stress_i = %MV^bonds_norating * min [dur_norating * 0,03;1]) + delta_Liab_ul

where:

(a) SCR bonds denotes the capital requirement for spread risk on bonds and loans;

(b) MV bonds denotes the value in accordance with Article 75 of Directive 2009/138/EC of the assets subject to capital requirements for spread risk on bonds and loans;

(c) %MV i bonds denotes the proportion of the portfolio of the assets subject to a capital requirement for spread risk on bonds and loans with credit quality step i, where a credit assessment by a nominated ECAI is available for those assets;

(d) %MV bonds norating denotes the proportion of the portfolio of the assets subject to a capital requirement for spread risk on bonds and loans for which no credit assessment by a nominated ECAI is available;

(e) dur i and dur norating denote the modified duration denominated in years of the assets subject to a capital requirement for spread risk on bonds and loans where no credit assessment by a nominated ECAI is available;

(f) stress i denotes a function of the credit quality step i and of the modified duration denominated in years of the assets subject to a capital requirement for spread risk on bonds and loans with credit quality step i, set out in paragraph 2;

(g) ΔLiab ul denotes the increase in the technical provisions less risk margin for policies where the policyholders bear the investment risk with embedded options and guarantees that would result from an instantaneous decrease in the value of the assets subject to the capital requirement for spread risk on bonds of:

MV_bonds = (sum_i %MV^bonds_i * stress_i = %MV^bonds_norating * min [dur_norating * 0,03;1])

stress i referred to in point (f) of paragraph 1, for each credit quality step i, shall be equal to: dur i · b i , where dur i is the modified duration denominated in years of the assets subject to a capital requirement for spread risk on bonds and loans with credit quality step i, and b i is determined in accordance with the following table (see here for the full table)

dur norating referred to in point (e) of paragraph 1 and dur i referred to in paragraph 2 shall not be lower than 1 year.

Metadata

RULEBOOK TOPIC:  SUBSECTION 6 - Proportionality and simplifications

RULEBOOK CATEGORY:  DELEGATED REGULATION (EU) 2015/35

Last update on:  03 May 2021