Earthquake risk sub-module

1. The capital requirement for earthquake risk shall be equal to the following:

SCR earthquake = sqrt ((sum (r,s) CorrEQ (r,s) * SCR (earthquake,r) * SCR (earthquake,s)) + SCR^2 (earthquake,other))

where:

(a) the sum includes all possible combinations (r,s) of the regions set out in Annex VI;

(b) CorrEQ (r,s) denotes the correlation coefficient for earthquake risk for region r and region s as set out in Annex VI;

(c) SCR (earthquake,r) and SCR (earthquake,s) denote the capital requirements for earthquake risk in region r and s respectively;

(d) SCR (earthquake,other) denotes the capital requirement for earthquake risk in regions other than those set out in Annex XIII.

2. For all regions set out in Annex VII, the capital requirement for earthquake risk in a particular region r shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is equal to the following amount:

L (earthquake,r) = Q (earthquake, r) * sqrt (sum (i,j) Corr (earthquake,r,i,j) * WSI (earthquake,r,i) *WSI (earthquake,r,j))

where:

(a) Q (earthquake, r) denotes the earthquake risk factor for region r as set out in Annex VI;

(b) the sum includes all possible combinations of risk zones (i,j) of region r set out in Annex IX;

(c) Corr (earthquake,r,i,j) denotes the correlation coefficient for earthquake risk in risk zones i and j of region r set out in Annex XXIII;

(d) WSI (earthquake,r,i) and WSI (earthquake,r,j) denote the weighted sums insured for earthquake risk in risk zones i and j of region r set out in Annex IX. 

3.For all regions set out in Annex VI and all risk zones of those regions set out in Annex IX, the weighted sum insured for earthquake risk in a particular earthquake zone i of a particular region r shall be equal to the following:

WSI (earthquake,r,i) = W(earthquake,r,i) * SI (earthquake,r,i)

where:

(a) W (earthquake,r,i) denotes the risk weight for earthquake risk in risk zone i of region r set out in Annex X;

(b) SI (earthquake,r,i) denotes the sum insured for earthquake risk in earthquake zone i of region r;

 

4. For all regions set out in Annex VI and all risk zones of those regions set out in Annex IX, the sum insured for earthquake risk in a particular earthquake zone i of a particular region r shall be equal to the following:

SI (earthquake,r,i) = SI (property,r,i) + SI (onshore-property,r,i)

where:

(a) SI (property,r,i) denotes the sum insured of the insurance or reinsurance undertaking for lines of business 7 and 19 as set out in Annex I in relation to contracts that cover earthquake risk and where the risk is situated in risk zone i of region r;

(b) SI (onshore-property,r,i) denotes the sum insured of the insurance or reinsurance undertaking for lines of business 6 and 18 as set out in Annex I in relation to contracts that cover onshore property damage by earthquake and where the risk is situated in risk zone i of region r.

The capital requirement for earthquake risk in regions other than those set out in Annex XIII shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss in relation to each insurance and reinsurance contract that covers one or both of the following insurance or reinsurance obligations:

(a) obligations of lines of business 7 or 19 as set out in Annex I that cover earthquake risk, where the risk is not situated in one of the regions set out in Annex XIII;

(b) obligations of lines of business 6 or 18 as set out in Annex I in relation to onshore property damage by earthquake, where the risk is not situated in one of the regions set out in Annex XIII.

The amount of the instantaneous loss, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, referred to in paragraph 5 shall be equal to the following amount:

L (earthquake, other) = 1,2 * (0,5 · DIV earthquake + 0,5) · P earthquake

where:

(a) DIV earthquake is calculated in accordance with Annex III, but based on the premiums in relation to the obligations referred to in points (a) and (b) of paragraph 5 and restricted to the regions 5 to 18 set out in Annex III;

(b) P earthquake is an estimate of the premiums to be earned by insurance and reinsurance undertakings for each contract that covers the obligations referred to in points (a) and (b) of paragraph 5 during the following 12 months: for this purpose premiums shall be gross, without deduction of premiums for reinsurance contracts.