Commission Delegated Regulation (EU) 2015/35Dangos y teitl llawn

SECTION 5 U.K. Market risk module

Subsection 1 U.K. Correlation coefficients

Article 164 U.K.

1. The market risk module shall consist of all of the following sub-modules:

(a) the interest rate risk sub-module referred to in point (a) of subparagraph 2 of Article 105(5) of Directive 2009/138/EC;

(b) the equity risk sub-module referred to in point (b) of subparagraph 2 of Article 105(5) of Directive 2009/138/EC;

(c) the property risk sub-module referred to in point (c) of subparagraph 2 of Article 105(5) of Directive 2009/138/EC;

(d) the spread risk sub-module referred to in point (d) of subparagraph 2 of Article 105(5) of Directive 2009/138/EC;

(e) the currency risk sub-module referred to in point (e) of subparagraph 2 of Article 105(5) of Directive 2009/138/EC;

(f) the market risk concentrations sub-module referred to in point (f) of subparagraph 2 of Article 105(5) of Directive 2009/138/EC.

2. The capital requirement for market risk referred to in Article 105(5) of Directive 2009/138/EC shall be equal to the following:

where:

(a)

the sum covers all possible combinations i,j of sub-modules of the market risk module;

(b)

Corr(i,j) denotes the correlation parameter for market risk for sub-modules i and j;

(c)

SCRi and SCRj denote the capital requirements for sub-modules i and j respectively.

3. The correlation parameter Corr_(i,j) referred to in paragraph 2 shall be equal to the item set out in row i and in column j of the following correlation matrix:

j i	Interest rate	Equity	Property	Spread	Concentration	Currency
Interest rate	1	A	A	A	0	0,25
Equity	A	1	0,75	0,75	0	0,25
Property	A	0,75	1	0,5	0	0,25
Spread	A	0,75	0,5	1	0	0,25
Concentration	0	0	0	0	1	0
Currency	0,25	0,25	0,25	0,25	0	1

The parameter A shall be equal to 0 where the capital requirement for interest rate risk set out in Article 165 is the capital requirement referred to in point (a) of that Article. In all other cases, the parameter A shall be equal to 0,5.

[F1 Subsection 1a U.K. Qualifying infrastructure investments

Article 164a U.K. Qualifying infrastructure investments

[F2 1. For the purposes of this Regulation, qualifying infrastructure investment shall include investment in an infrastructure entity that meets the following criteria:

(a) the cash flows generated by the infrastructure assets allow for all financial obligations to be met under sustained stresses that are relevant for the risks of the project;

(b) the cash flows that the infrastructure entity generates for debt providers and equity investors are predictable;

(c) the infrastructure assets and infrastructure entity are governed by a regulatory or contractual framework that provides debt providers and equity investors with a high degree of protection including the following:

(a)

the contractual framework shall include provisions that effectively protect debt providers and equity investors against losses resulting from the termination of the project by the party which agrees to purchase the goods or services provided by the infrastructure project, unless one of the following conditions is met:

(i)

the revenues of the infrastructure entity are funded by payments from a large number of users; or

(ii)

the revenues are subject to a rate-of-return regulation;

(b)

the infrastructure entity has sufficient reserve funds or other financial arrangements to cover the contingency funding and working capital requirements of the project;

Where investments are in bonds or loans, this contractual framework shall also include the following:

(i)

debt providers have security or the benefit of security to the extent permitted by applicable law in all assets and contracts that are critical to the operation of the project;

(ii)

the use of net operating cash flows after mandatory payments from the project for purposes other than servicing debt obligations is restricted;

(iii)

restrictions on activities that may be detrimental to debt providers, including that new debt cannot be issued without the consent of existing debt providers in the form agreed with them, unless such new debt issuance is permitted under the documentation for the existing debt;

Notwithstanding point (i) of the second subparagraph, for investments in bonds or loans, where undertakings can demonstrate that security in all assets and contracts is not essential for debt providers to effectively protect or recover the vast majority of their investment, other security mechanisms may be used. In that case, the other security mechanisms shall comprise at least one of the following:

(i)

pledge of shares;

(ii)

step-in rights;

(iii)

lien over bank accounts;

(iv)

control over cash flows;

(v)

provisions for assignment of contracts;

(d) where investments are in bonds or loans, the insurance or reinsurance undertaking can demonstrate to the supervisor that it is able to hold the investment to maturity;

(e) where investments are in bonds or loans for which a credit assessment by a nominated ECAI is not available, the investment instrument and other pari passu instruments are senior to all other claims other than statutory claims and claims from liquidity facility providers, trustees and derivatives counterparties;

(f) where investments are in equities, or bonds or loans for which a credit assessment by a nominated ECAI is not available, the following criteria are met:

(i)

the infrastructure assets and infrastructure entity are located in the EEA or in the OECD;

(ii)

where the infrastructure project is in the construction phase the following criteria shall be fulfilled by the equity investor, or where there is more than one equity investor, the following criteria shall be fulfilled by a group of equity investors as a whole:

• the equity investors have a history of successfully overseeing infrastructure projects and the relevant expertise,

• the equity investors have a low risk of default, or there is a low risk of material losses for the infrastructure entity as a result of the their default,

• the equity investors are incentivised to protect the interests of investors;

(iii)

where there are construction risks, safeguards to ensure completion of the project according to the agreed specification, budget or completion date;

(iv)

where operating risks are material, they are properly managed;

(v)

the infrastructure entity uses tested technology and design;

(vi)

the capital structure of the infrastructure entity allows it to service its debt;

(vii)

the refinancing risk for the infrastructure entity is low;

(viii)

the infrastructure entity uses derivatives only for risk-mitigation purposes.]

2. For the purposes of paragraph 1(b), the cash flows generated for debt providers and equity investors shall not be considered predictable unless all except an immaterial part of the revenues satisfies the following conditions:

(a) one of the following criteria is met:

(i)

the revenues are availability-based;

(ii)

the revenues are subject to a rate-of-return regulation;

(iii)

the revenues are subject to a take-or-pay contract;

(iv)

the level of output or the usage and the price shall independently meet one of the following criteria:

• it is regulated,

• it is contractually fixed,

• it is sufficiently predictable as a result of low demand risk;

(b) where the revenues of the infrastructure project entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure project entity shall be one of the following:

(i)

an entity listed in Article 180(2) of this Regulation;

(ii)

a regional government or local authority listed in the Regulation adopted pursuant to Article 109a(2)(a) of Directive 2009/138/EC;

(iii)

an entity with an ECAI rating with a credit quality step of at least 3;

(iv)

an entity that is replaceable without a significant change in the level and timing of revenues.

Textual Amendments

F2 Substituted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

[F3 Article 164b U.K. Qualifying infrastructure corporate investments

For the purpose of this Regulation, qualifying infrastructure corporate investment shall include investment in an infrastructure entity that meets the following criteria:

(1)

The substantial majority of the infrastructure entity's revenues is derived from owning, financing, developing or operating infrastructure assets located in the EEA or the OECD;

(2)

The revenues generated by the infrastructure assets satisfy one of the criteria set out in Article 164a(2)(a);

(3)

Where the revenues of the infrastructure entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure entity shall be one of the entities listed in Article 164a(2)(b);

(4)

The revenues shall be diversified in terms of activities, location, or payers, unless the revenues are subject to a rate-of-return regulation in accordance with Article 164a(1)(c)(a)(ii) or a take-or-pay contract or the revenues are availability based;

(5)

Where investments are in bonds or loans, the insurance or reinsurance undertaking can demonstrate to the supervisor that it is able to hold the investment to maturity;

(6)

Where no credit assessment from a nominated ECAI is available for the infrastructure entity:

(a)

the capital structure of the infrastructure corporate shall allow it to service all its debt under conservative assumptions based on an analysis of the relevant financial ratios;

(b)

the infrastructure entity shall have been active for at least three years or, in the case of an acquired business, it shall have been in operation for at least three years;

(7)

Where a credit assessment from a nominated ECAI is available for the infrastructure entity, such credit assessment has a credit quality step between 0 and 3.] ]

Textual Amendments

F3 Inserted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

Subsection 2 U.K. Interest rate risk sub-module

Article 165 U.K. General provisions

1. The capital requirement for interest rate risk referred to in point (a) of the second subparagraph Article 105(5) of Directive 2009/138/EC shall be equal to the larger of the following:

(a) the sum, over all currencies, of the capital requirements for the risk of an increase in the term structure of interest rates as set out in Article 166 of this Regulation;

(b) the sum, over all currencies, of the capital requirements for the risk of a decrease in the term structure of interest rates as set out in Article 167 of this Regulation.

2. Where the larger of the capital requirements referred to in points (a) and (b) of paragraph 1 and the larger of the corresponding capital requirements calculated in accordance with Article 206(2) are not based on the same scenario, the capital requirement for interest rate risk shall be the capital requirement referred to in points (a) or (b) of paragraph 1 for which the underlying scenario results in the largest corresponding capital requirement calculated in accordance with Article 206(2).

Article 166 U.K. Increase in the term structure of interest rates

1. 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 loss in the basic own funds that would result from an instantaneous increase in basic risk-free interest rates for that currency at different maturities in accordance with the following table:

For maturities not specified in the table above, the value of the increase shall be linearly interpolated. For maturities shorter than 1 year, the increase shall be 70 %. For maturities longer than 90 years, the increase shall be 20 %.

2. In any case, the increase of basic-risk-free interest rates at any maturity shall be at least one percentage point.

3. The impact of the increase in the term structure of basic risk-free interest rates on the value of participations as referred to in Article 92(2) of Directive 2009/138/EC in financial and credit institutions shall be considered only on the value of the participations that are not deducted from own funds pursuant to Article 68 of this Regulation. The part deducted from own funds shall be considered only to the extent that such impact increases the basic own funds.

Article 167 U.K. Decrease in the term structure of interest rates

1. 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 loss in the basic own funds that would result from an instantaneous decrease in basic risk-free interest rates for that currency at different maturities in accordance with the following table:

For maturities not specified in the table above, the value of the decrease shall be linearly interpolated. For maturities shorter than 1 year, the decrease shall be 75 %. For maturities longer than 90 years, the decrease shall be 20 %.

2. Notwithstanding paragraph 1, for negative basic risk-free interest rates the decrease shall be nil.

3. The impact on the value of participations as referred to in Article 92(2) of Directive 2009/138/EC in financial and credit institutions of the decrease in the term structure of basic risk-free interest rates shall be considered only on the value of the participations that are not deducted from own funds pursuant to Article 68 of this Regulation. The part deducted from own funds shall be considered only to the extent that such impact increases the basic own funds.

Subsection 3 U.K. Equity risk sub-module

Article 168 U.K. General provisions

[F4 [F2 1. The equity risk sub-module referred to in point (b) of the second subparagraph of Article 105(5) of Directive 2009/138/EC shall include a risk sub-module for type 1 equities, a risk sub-module for type 2 equities, a risk sub-module for qualifying infrastructure equities and a risk sub-module for qualifying infrastructure corporate equities.]

2. Type 1 equities shall comprise equities listed in regulated markets in countries which are members of the European Economic Area (EEA) or the Organisation for Economic Cooperation and Development (OECD), or traded on multilateral trading facilities, as referred to in Article 4(1)(22) of Directive 2014/65/EU, whose registered office or head office is in EU Member States.

3. Type 2 equities shall comprise equities other than those referred to in paragraph 2, commodities and other alternative investments. They shall also comprise all assets other than those covered in the interest rate risk sub-module, the property risk sub-module or the spread risk sub-module, including the assets and indirect exposures referred to in Article 84(1) and (2) where a look-through approach is not possible and the insurance or reinsurance undertaking does not make use of the provisions in Article 84(3).]

[F1 3a. Qualifying infrastructure equities shall comprise equity investments in infrastructure project entities that meet the criteria set out in Article 164a.]

[F3 3b. Qualifying infrastructure corporate equities shall comprise equity investments in infrastructure entities that meet the criteria set out in Article 164b.]

[F2 4. The capital requirement for equity risk shall be equal to the following:

[X2 ]

where:

(a)

SCR _equ1 denotes the capital requirement for type 1 equities;

(b)

SCR _equ2 denotes the capital requirement for type 2 equities;

(c)

SCR _quinf denotes the capital requirement for qualifying infrastructure equities;

(d)

SCR _quinfc denotes the capital requirement for qualifying infrastructure corporate equities.]

5. The impact of the instantaneous decreases set out in Articles 169 and 170 on the value of participations as referred to in Article 92(2) of Directive 2009/138/EC in financial and credit institutions shall be considered only on the value of the participations that are not deducted from own funds pursuant to Article 68 of this Regulation.

6. The following equities shall in any case be considered as type 1:

[F2 (a) equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within collective investment undertakings which are qualifying social entrepreneurship funds as referred to in Article 3(b) of Regulation (EU) No 346/2013 of the European Parliament and of the Council (1) where the look-through approach set out in Article 84 of this Regulation is possible for all exposures within the collective investment undertaking, or units or shares of those funds where the look through approach is not possible for all exposures within the collective investment undertaking;

(b) equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within collective investment undertakings which are qualifying venture capital funds as referred to in Article 3(b) of Regulation (EU) No 345/2013 of the European Parliament and of the Council (2) where the look-through approach set out in Article 84 of this Regulation is possible for all exposures within the collective investment undertaking, or units or shares of those funds where the look through approach is not possible for all exposures within the collective investment undertaking;]

(c) as regards closed-ended and unleveraged alternative investment funds which are established in the Union or, if they are not established in the Union, which are marketed in the Union in accordance with Articles 35 or 40 of Directive 2011/61/EU:

(i)

[F2 equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within such funds where the look-through approach set out in Article 84 of this Regulation is possible for all exposures within the alternative investment fund;]

(ii)

units or shares of such funds where the look-through approach is not possible for all exposures within the alternative investment fund[F4 ;]

[F2 (d) equities, other than qualifying infrastructure equities or qualifying infrastructure corporate equities, held within collective investment undertakings which are authorised as European long-term investment funds pursuant to Regulation (EU) 2015/760 where the look through approach set out in Article 84 of this Regulation is possible for all exposures within the collective investment undertaking, or units or shares of those funds where the look through approach is not possible for all exposures within the collective investment undertaking.]

Editorial Information

X2 Substituted by Corrigendum to Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Official Journal of the European Union L 236 of 14 September 2017).

Textual Amendments

F1 Inserted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

F2 Substituted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

F3 Inserted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

F4 Substituted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

Article 169 U.K. Standard equity risk sub-module

1. The capital requirement for type 1 equities referred to in Article 168 of this Regulation shall be equal to the loss in the basic own funds that would result from the following instantaneous decreases:

(a) an instantaneous decrease equal to 22 % in the value of type 1 equity investments in related undertakings within the meaning of Article 212(1)(b) and 212(2) of Directive 2009/138/EC where these investments are of a strategic nature;

(b) an instantaneous decrease equal to the sum of 39 % and the symmetric adjustment as referred to in Article 172 of this Regulation, in the value of type 1 equities other than those referred to in point (a).

2. The capital requirement for type 2 equities referred to in Article 168 of this Regulation shall be equal to the loss in the basic own funds that would result from the following instantaneous decreases:

(a) an instantaneous decrease equal to 22 % in the value of type 2 equity investments in related undertakings with the meaning of Article 212(1)(b) and 212(2) of Directive 2009/138/EC where these investments are of a strategic nature;

(b) an instantaneous decrease equal to the sum of 49 % and the symmetric adjustment as referred to in Article 172, in the value of type 2 equities, other than those referred to in point (a).

[F1 3. The capital requirement for qualifying infrastructure equities referred to in Article 168 of this Regulation shall be equal to the loss in the basic own funds that would result from the following instantaneous decreases:

(a) an instantaneous decrease equal to 22 % in the value of qualifying infrastructure equity investments in related undertakings within the meaning of Article 212(1)(b) and 212(2) of Directive 2009/138/EC where these investments are of a strategic nature;

(b) an instantaneous decrease equal to the sum of 30 % and 77 % of the symmetric adjustment as referred to in Article 172 of this Regulation in the value of qualifying infrastructure equities other than those referred to in point (a).]

[F3 4. The capital requirement for qualifying infrastructure corporate equities referred to in Article 168 of this Regulation shall be equal to the loss in the basic own funds that would result from the following instantaneous decreases:

(a) an instantaneous decrease equal to 22 % in the value of qualifying infrastructure corporate equity investments in related undertakings within the meaning of Article 212(1)(b) and 212(2) of Directive 2009/138/EC where these investments are of a strategic nature;

(b) an instantaneous decrease equal to the sum of 36 % and 92 % of the symmetric adjustment as referred to in Article 172 of this Regulation in the value of qualifying infrastructure corporate equities other than those referred to in point (a).]

Textual Amendments

F1 Inserted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

F3 Inserted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

Article 170 U.K. Duration-based equity risk sub-module

1. Where an insurance or reinsurance undertaking has received supervisory approval to apply the provisions set out in Article 304 of Directive 2009/138/EC, the capital requirement for type 1 equities shall be equal to the loss in the basic own funds that would result from the following instantaneous decreases:

[F4 (a) an instantaneous decrease equal to 22 % in the value of the type 1 equities corresponding to the business referred to in point (i) of Article 304(1) of Directive 2009/138/EC;]

(b) an instantaneous decrease equal to 22 % in the value of type 1 equity investments in related undertakings within the meaning of Article 212(1)(b) and 212(2) of Directive 2009/138/EC where these investments are of a strategic nature;

(c) an instantaneous decrease equal to the sum of 39 % and the symmetric adjustment as referred to in Article 172 of this Regulation, in the value of type 1 equities, other than those referred to in points (a) or (b).

2. Where an insurance or reinsurance undertaking has received supervisory approval to apply the provisions set out in Article 304 of Directive 2009/138/EC, the capital requirement for type 2 equities shall be equal to the loss in the basic own funds that would result from an instantaneous decrease:

[F4 (a) equal to 22 % in the value of the type 2 equities corresponding to the business referred to in point (i) of Article 304(1) of Directive 2009/138/EC;]

(b) equal to 22 % in the value of type 2 equity investments in related undertakings within the meaning of Article 212(1)(b) and (2) of Directive 2009/138/EC, where these investments are of a strategic nature;

(c) equal to the sum of 49 % and the symmetric adjustment as referred to in Article 172 of this Regulation, in the value of type 2 equities, other than those referred to in points (a) or (b).

[F1 3. Where an insurance or reinsurance undertaking has received supervisory approval to apply the provisions set out in Article 304 of Directive 2009/138/EC, the capital requirement for qualifying infrastructure equities shall be equal to the loss in the basic own funds that would result from an instantaneous decrease:

(a) equal to 22 % in the value of the qualifying infrastructure equity corresponding to the business referred to in point (i) of Article 304(1) of Directive 2009/138/EC;

(b) equal to 22 % in the value of qualifying infrastructure equity investments in related undertakings within the meaning of Article 212(1)(b) and (2) of Directive 2009/138/EC, where these investments are of a strategic nature;

(c) equal to the sum of 30 % and 77 % of the symmetric adjustment as referred to in Article 172 of this Regulation in the value of qualifying infrastructure equities other than those referred to in points (a) or (b).]

[F3 4. Where an insurance or reinsurance undertaking has received supervisory approval to apply the provisions set out in Article 304 of Directive 2009/138/EC, the capital requirement for qualifying infrastructure corporate equities shall be equal to the loss in the basic own funds that would result from an instantaneous decrease:

(a) equal to 22 % in the value of the qualifying infrastructure corporate equity corresponding to the business referred to in point (i) of Article 304(1)(b) of Directive 2009/138/EC;

(b) equal to 22 % in the value of qualifying infrastructure corporate equity investments in related undertakings within the meaning of Article 212(1)(b) and (2) of Directive 2009/138/EC, where these investments are of a strategic nature;

(c) equal to the sum of 36 % and 92 % of the symmetric adjustment as referred to in Article 172 of this Regulation in the value of qualifying infrastructure corporate equities other than those referred to in points (a) or (b).]

Textual Amendments

F1 Inserted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

F3 Inserted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

F4 Substituted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

Article 171 U.K. Strategic equity investments

[F2 For the purposes of Article 169(1)(a), (2)(a), (3)(a) and (4)(a) and of Article 170(1)(b), (2)(b), (3)(b) and (4)(b), equity investments of a strategic nature shall mean equity investments for which the participating insurance or reinsurance undertaking demonstrates the following:]

(a)

that the value of the equity investment is likely to be materially less volatile for the following 12 months than the value of other equities over the same period as a result of both the nature of the investment and the influence exercised by the participating undertaking in the related undertaking;

(b)

that the nature of the investment is strategic, taking into account all relevant factors, including:

(i)

the existence of a clear decisive strategy to continue holding the participation for long period;

(ii)

the consistency of the strategy referred to in point (a) with the main policies guiding or limiting the actions of the undertaking;

(iii)

the participating undertaking's ability to continue holding the participation in the related undertaking;

(iv)

the existence of a durable link;

(v)

where the insurance or reinsurance participating company is part of a group, the consistency of such strategy with the main policies guiding or limiting the actions of the group.

Textual Amendments

F2 Substituted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

Article 172 U.K. Symmetric adjustment of the equity capital charge

1. The equity index referred to in Article 106(2) of Directive 2009/138/EC shall comply with all of the following requirements:

(a) the equity index measures the market price of a diversified portfolio of equities which is representative of the nature of equities typically held by insurance and reinsurance undertakings;

(b) the level of the equity index is publicly available;

(c) the frequency of published levels of the equity index is sufficient to enable the current level of the index and its average value over the last 36 months to be determined.

2. Subject to paragraph 4, the symmetric adjustment shall be equal to the following:

where:

(a)

CI denotes the current level of the equity index;

(b)

AI denotes the weighted average of the daily levels of the equity index over the last 36 months.

3. For the purposes of calculating the weighted average of the daily levels of the equity index, the weights for all daily levels shall be equal. The days during the last 36 months in respect of which the index was not determined shall not be included in the average.

4. The symmetric adjustment shall not be lower than – 10 % or higher than 10 %.

[F4 Article 173 U.K. Criteria for the use of transitional measure for standard equity risk

1. The transitional measure for standard equity risk set out in Article 308b(13) of Directive 2009/138/EC shall only apply to equities that were purchased on or before 1 January 2016 and which are not subject to the duration-based equity risk pursuant to Article 304 of that Directive.

2. Where equities are held within an collective investment undertaking or other investments packaged as funds, and where the look-through approach is not possible, the transitional measure set out in Article 308b(13) of Directive 2009/138/EC shall be applied to the proportion of equities held within the collective investment undertaking or investment packaged as funds in accordance with the target underlying asset allocation on 1 January 2016 , provided the target allocation is available to the undertaking. The proportion of equities to which the transitional is applied shall be reduced annually in proportion to the asset turnover ratio of the collective investment undertaking or investment packaged as funds. Where the target allocation for equity investments of the collective investment undertaking or investment packaged as funds increases, the proportion of equities the transitional is applied to shall not increase.]

Textual Amendments

F4 Substituted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

Subsection 4 U.K. Property risk sub-module

Article 174 U.K.

The capital requirement for property risk referred to in point (c) of the second subparagraph of Article 105(5) of Directive 2009/138/EC shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of 25 % in the value of immovable property.

Subsection 5 U.K. Spread risk sub-module

Article 175 U.K. Scope of the spread risk sub-module

The capital requirement for spread risk referred to in point (d) of the second subparagraph of Article 105(5) of Directive 2009/138/EC shall be equal to the following:

where

(a)

SCR_bonds denotes the capital requirement for spread risk on bonds and loans;

(b)

SCR_{securitisation} denotes the capital requirement for spread risk on securitisation positions;

(c)

SCR_cd denotes the capital requirement for spread risk on credit derivatives.

Article 176 U.K. Spread risk on bonds and loans

1. The capital requirement for spread risk on bonds and loans SCR_bonds shall be equal to the loss in the basic own funds that would result from an instantaneous relative decrease of stress_i in the value of each bond or loan i other than mortgage loans that meet the requirements in Article 191, including bank deposits other than cash at bank referred to in Article 189(2)(b).

2. The risk factor stress_i shall depend on the modified duration of the bond or loan i denominated in years (dur_i ). dur_i shall never be lower than 1. For variable interest rate bonds or loans, dur_i shall be equivalent to the modified duration of a fixed interest rate bond or loan of the same maturity and with coupon payments equal to the forward interest rate.

[F4 3. Bonds or loans for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i depending on the credit quality step and the modified duration dur _i of the bond or loan i according to the following table.

Credit quality step		0		1		2		3		4		5 and 6
Duration ( dur i )	stress i	a i	b i	a i	b i	a i	b i	a i	b i	a i	b i	a i	b i
up to 5	b i · dur i	—	0,9 %	—	1,1 %	—	1,4 %	—	2,5 %	—	4,5 %	—	7,5 %
More than 5 and up to 10	a i + b i · ( dur i – 5)	4,5 %	0,5 %	5,5 %	0,6 %	7,0 %	0,7 %	12,5 %	1,5 %	22,5 %	2,5 %	37,5 %	4,2 %
More than 10 and up to 15	a i + b i · ( dur i – 10)	7,0 %	0,5 %	8,5 %	0,5 %	10,5 %	0,5 %	20,0 %	1,0 %	35,0 %	1,8 %	58,5 %	0,5 %
More than 15 and up to 20	a i + b i · ( dur i – 15)	9,5 %	0,5 %	11 %	0,5 %	13,0 %	0,5 %	25,0 %	1,0 %	44,0 %	0,5 %	61,0 %	0,5 %
More than 20	min[ a i + b i · ( dur i – 20);1]	12,0 %	0,5 %	13,5 %	0,5 %	15,5 %	0,5 %	30,0 %	0,5 %	46,6 %	0,5 %	63,5 %	0,5 %]

[F4 4. Bonds and loans for which a credit assessment by a nominated ECAI is not available and for which debtors have not posted collateral that meets the criteria set out in Article 214 shall be assigned a risk factor stress _i depending on the duration dur _i of the bond or loan i according to the following table:

Duration ( dur i )	stress i
up to 5	3 % · dur i
More than 5 and up to 10	15 % + 1,7 % · ( dur i – 5)
More than 10 and up to 20	23,5 % + 1,2 % · ( dur i – 10)
More than 20	min(35,5 % + 0,5 % · ( dur i – 20); 1)]

5. Bonds and loans for which a credit assessment by a nominated ECAI is not available and for which debtors have posted collateral, where the collateral of those bonds and loans meet the criteria set out in Article 214, shall be assigned a risk factor stress_i according to the following:

(a) where the risk-adjusted value of collateral is higher than or equal to the value of the bond or loan i, stress_i shall be equal to half of the risk factor that would be determined in accordance with paragraph 4;

(b) where the risk-adjusted value of collateral is lower than the value of the bond or loan i, and where the risk factor determined in accordance with paragraph 4 would result in a value of the bond or loan i that is lower than the risk-adjusted value of the collateral, stress_i shall be equal to the average of the following:

(i)

the risk factor determined in accordance with paragraph 4;

(ii)

the difference between the value of the bond or loan i and the risk-adjusted value of the collateral, divided by the value of the bond or loan i;

(c) where the risk-adjusted value of collateral is lower than the value of the bond or loan i, and where the risk factor determined in accordance with paragraph 4 would result in a value of the bond or loan i that is higher than or equal to the risk-adjusted value of the collateral, stress_i shall be determined in accordance with paragraph 4.

The risk-adjusted value of the collateral shall be calculated in accordance with Articles 112, 197, 198.

6. The impact of the instantaneous decrease in the value of participations, as referred to in Article 92(2) of Directive 2009/138/EC, in financial and credit institutions shall be considered only on the value of the participations that are not deducted from own funds pursuant to Article 68 of this Regulation.

Textual Amendments

F4 Substituted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

F5 Article 177 U.K. [F5 Spread risk on securitisation positions: general provisions]

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F5 Deleted by Commission Delegated Regulation (EU) 2018/1221 of 1 June 2018 amending Delegated Regulation (EU) 2015/35 as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by insurance and reinsurance undertakings (Text with EEA relevance).

[F6 Article 178 U.K. Spread risk on securitisation positions: calculation of the capital requirement

1. The capital requirement SCR _{securitisation} for spread risk on securitisation positions shall be equal to the loss in the basic own funds that would result from an instantaneous relative decrease of stress _i in the value of each securitisation position i .

2. The risk factor stress _i shall depend on the modified duration denominated in years ( dur _i ). dur _i shall not be lower than 1 year.

3. Senior STS securitisation positions which fulfil the requirements set out in Article 243 of Regulation (EU) No 575/2013 and for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i depending on the credit quality step and the modified duration of the securitisation position i , as set out in the following table:

Credit quality step		0		1		2		3		4		5 and 6
Duration	stress i	a i	b i	a i	b i	a i	b i	a i	b i	a i	b i	a i	b i
( dur i )
up to 5	b i · dur i	—	1,0 %	—	1,2 %	—	1,6 %	—	2,8 %	—	5,6 %	—	9,4 %
More than 5 and up to 10	a i + b i · ( dur i – 5)	5,0 %	0,6 %	6,0 %	0,7 %	8,0 %	0,8 %	14,0 %	1,7 %	28,0 %	3,1 %	47,0 %	5,3 %
More than 10 and up to 15	a i + b i · ( dur i – 10)	8,0 %	0,6 %	9,5 %	0,5 %	12,0 %	0,6 %	22,5 %	1,1 %	43,5 %	2,2 %	73,5 %	0,6 %
More than 15 and up to 20	a i + b i · ( dur i – 15)	11,0 %	0,6 %	12,0 %	0,5 %	15,0 %	0,6 %	28,0 %	1,1 %	54,5 %	0,6 %	76,5 %	0,6 %
More than 20	min[ a i + b i · ( dur i – 20);1]	14,0 %	0,6 %	14,5 %	0,5 %	18,0 %	0,6 %	33,5 %	0,6 %	57,5 %	0,6 %	79,5 %	0,6 %

4. Non-senior STS securitisation positions which fulfil the requirements set out in Article 243 of Regulation (EU) No 575/2013 and for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i depending on the credit quality step and the modified duration of the securitisation position i , as set out in the following table:

Credit quality step		0		1		2		3		4		5 and 6
Duration	stress i	a i	b i	a i	b i	a i	b i	a i	b i	a i	b i	a i	b i
( dur i )
up to 5	min[ b i · dur i ;1]	—	2,8 %	—	3,4 %	—	4,6 %	—	7,9 %	—	15,8 %	—	26,7 %
More than 5 and up to 10	min[ a i + b i · ( dur i – 5);1]	14,0 %	1,6 %	17,0 %	1,9 %	23,0 %	2,3 %	39,5 %	4,7 %	79,0 %	8,8 %	100,0 %	0,0 %
More than 10 and up to 15	a i + b i · ( dur i – 10)	22,0 %	1,6 %	26,5 %	1,5 %	34,5 %	1,6 %	63,0 %	3,2 %	100,0 %	0,0 %	100,0 %	0,0 %
More than 15 and up to 20	a i + b i · ( dur i – 15)	30,0 %	1,6 %	34,0 %	1,5 %	42,5 %	1,6 %	79,0 %	3,2 %	100,0 %	0,0 %	100,0 %	0,0 %
More than 20	min[ a i + b i · ( dur i – 20);1]	38,0 %	1,6 %	41,5 %	1,5 %	50,5 %	1,6 %	95,0 %	1,6 %	100,0 %	0,0 %	100,0 %	0,0 %

5. Senior STS securitisation positions which fulfil the criteria set out in Article 243 of Regulation (EU) No 575/2013 and for which no credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i depending on the modified duration of the securitisation position i , as set out in the following table:

Duration	stress i	a i	b i
( dur i )
up to 5	b i · dur i	—	4,6 %
More than 5 and up to 10	a i + b i · ( dur i – 5)	23 %	2,5 %
More than 10 and up to 15	a i + b i · ( dur i – 10)	35,5 %	1,8 %
More than 15 and up to 20	a i + b i · ( dur i – 15)	44,5 %	0,5 %
More than 20	min[ a i + b i · ( dur i – 20);1]	47 %	0,5 %

6. Non-senior STS securitisation positions which fulfil the criteria set out in Article 243 of Regulation (EU) No 575/2013 and for which no credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i equivalent to credit quality step 5 and depending on the modified duration of the exposure, as set out in the table in paragraph 3.

7. Re-securitisation positions for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i equal to the following formula:

• stress _i = min( b _i · dur _i ;1)

• where b _i shall be assigned depending on the credit quality step of re-securitisation position i , as set out in the following table:

• Credit quality step	0	1	2	3	4	5	6
  b i	33 %	40 %	51 %	91 %	100 %	100 %	100 %

8. Securitisation positions not covered by paragraphs 3 to 7, for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress _i equal to the following formula:

• stress _i = min( b _i · dur _i ;1)

• where b _i shall be assigned depending on the credit quality step of securitisation position i , as set out in the following table:

• Credit quality step	0	1	2	3	4	5	6
  b i	12,5 %	13,4 %	16,6 %	19,7 %	82 %	100 %	100 %

9. Securitisation positions not covered by paragraphs 3 to 8, shall be assigned a risk factor stress _i of 100 %.]

Textual Amendments

F6 Substituted by Commission Delegated Regulation (EU) 2018/1221 of 1 June 2018 amending Delegated Regulation (EU) 2015/35 as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by insurance and reinsurance undertakings (Text with EEA relevance).

[F7 Article 178a U.K. Spread risk on securitisation positions: transitional provisions

1. Notwithstanding Article 178(3), securitisations issued before 1 January 2019 that qualify as type 1 securitisations in accordance with Article 177(2) in the version in force on 31 December 2018 shall be assigned a risk factor stress _i in accordance with Article 178(3) even where those securitisations are not STS securitisations which fulfil the requirements set out in Article 243 of Regulation (EU) No 575/2013.

2. Paragraph 1 shall apply only in circumstances where no new underlying exposures were added or substituted after 31 December 2018 .

3. Notwithstanding Article 178(3), securitisations issued before 18 January 2015 that qualify as type 1 securitisations in accordance with Article 177(4) in the version in force on 31 December 2018 shall be assigned a risk factor stress _i in accordance with Articles 177 and 178 in the version in force on 31 December 2018 .

4. Notwithstanding Article 178(3), securitisations issued before 1 January 2019 that qualify as type 1 securitisations in accordance with Article 177(5) in the version in force on 31 December 2018 shall, until 31 December 2025 , be assigned a risk factor stress _i in accordance with Articles 177 and 178 in the version in force on 31 December 2018 .]

Textual Amendments

F7 Inserted by Commission Delegated Regulation (EU) 2018/1221 of 1 June 2018 amending Delegated Regulation (EU) 2015/35 as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by insurance and reinsurance undertakings (Text with EEA relevance).

Article 179 U.K. Spread risk on credit derivatives

1. [F4 The capital requirement SCR _cd for spread risk on credit derivatives other than those referred to in paragraph 3 shall be equal to the higher of the following capital requirements:]

[F4 (a) the loss in the basic own funds that would result from an instantaneous increase in absolute terms of the credit spread of the instruments underlying the credit derivatives;]

(b) the loss in the basic own funds that would result from an instantaneous relative decrease of the credit spread of the instruments underlying the credit derivatives by 75 %.

For the purposes of point (a), the instantaneous increase of the credit spread of the instruments underlying the credit derivatives for which a credit assessment by a nominated ECAI is available shall be calculated according to the following table.

Credit quality step	0	1	2	3	4	5	6
Instantaneous increase in spread (in percentage points)	1,3	1,5	2,6	4,5	8,4	16,20	16,20

2. For the purposes of point (a) of paragraph 1, the instantaneous increase of the credit spread of the instruments underlying the credit derivatives for which a credit assessment by a nominated ECAI is not available shall be 5 percentage points.

3. Credit derivatives which are part of the undertaking's risk mitigation policy shall not be subject to a capital requirement for spread risk, as long as the undertaking holds either the instruments underlying the credit derivative or another exposure with respect to which the basis risk between that exposure and the instruments underlying the credit derivative is not material in any circumstances.

4. Where the larger of the capital requirements referred to in points (a) and (b) of paragraph 1 and the larger of the corresponding capital requirements calculated in accordance with Article 206(2) are not based on the same scenario, the capital requirement for spread risk on credit derivatives shall be the capital requirement referred to in paragraph 1 for which the underlying scenario results in the largest corresponding capital requirement calculated in accordance with Article 206(2).

Textual Amendments

F4 Substituted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

Article 180 U.K. Specific exposures

1. Exposures in the form of bonds referred to Article 52(4) of Directive 2009/65/EC (covered bonds) which have been assigned to credit quality step 0 or 1 shall be assigned a risk factor stress_i according to the following table.

Credit quality stepDuration (dur i)	0	1
up to 5	0,7 %. duri	0,9 %. duri
More than 5 years

2. Exposures in the form of bonds and loans to the following shall be assigned a risk factor stress_i of 0 %:

(a) the European Central Bank;

(b) Member States' central government and central banks denominated and funded in the domestic currency of that central government and the central bank;

(c) multilateral development banks referred to in paragraph 2 of Article 117 of Regulation (EU) No 575/2013;

(d) international organisations referred to in Article 118 of Regulation (EU) No 575/2013;

Exposures in the form of bonds and loans that are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d), where the guarantee meets the requirements set out in Article 215, shall also be assigned a risk factor stress_i of 0 %.

3. Exposures in the form of bonds and loans to central governments and central banks other than those referred to in point (b) of paragraph 2, denominated and funded in the domestic currency of that central government and central bank, and for which a credit assessment by a nominated ECAI is available shall be assigned a risk factor stress_i depending on the credit quality step and the duration of the exposure according to the following table:

Credit quality step		0 and 1		2		3		4		5 and 6
Duration(duri )	stressi	ai	bi	ai	bi	ai	bi	ai	bi	ai	bi
up to 5		—	0,0 %	—	1,1 %	—	1,4 %	—	2,5 %	—	4,5 %
More than 5 and up to 10		0,0 %	0,0 %	5,5 %	0,6 %	7,0 %	0,7 %	12,5 %	1,5 %	22,5 %	2,5 %
More than 10 and up to 15		0,0 %	0,0 %	8,4 %	0,5 %	10,5 %	0,5 %	20,0 %	1,0 %	35,0 %	1,8 %
More than 15 and up to 20		0,0 %	0,0 %	10,9 %	0,5 %	13,0 %	0,5 %	25,0 %	1,0 %	44,0 %	0,5 %
More than 20		0,0 %	0,0 %	13,4 %	0,5 %	15,5 %	0,5 %	30,0 %	0,5 %	46,5 %	0,5 %

4. Exposures in the form of bonds and loans to an insurance or reinsurance undertaking for which a credit assessment by a nominated ECAI is not available and where this undertaking meets its Minimum Capital Requirement, shall be assigned a risk factor stress_i from the table in Article 176(3) depending on the undertaking's solvency ratio, using the following mapping between solvency ratios and credit quality steps:

Solvency ratio	196 %	175 %	122 %	95 %	75 %	75 %
Credit quality step	1	2	3	4	5	6

Where the solvency ratio falls in between the solvency ratios set out in the table above, the value of stress_i shall be linearly interpolated from the closest values of stress_i corresponding to the closest solvency ratios set out in the table above. Where the solvency ratio is lower than 75 %, stress_i shall be equal to the factor corresponding to the credit quality steps 5 and 6. Where the solvency ratio is higher than 196 %, stress_i shall be the same as the factor corresponding to the credit quality step 1.

For the purposes of this paragraph, ‘solvency ratio’ denotes the ratio of the eligible amount of own funds to cover the Solvency Capital Requirement and the Solvency Capital Requirement, using the latest available values.

5. Exposures in the form of bonds and loans to an insurance or reinsurance undertaking which does not meet its Minimum Capital Requirement shall be assigned a risk factor stress_i according to the following table:

Duration (duri )	risk factor stressi
up to 5	7,5 %. duri
More than 5 and up to 10	37,50 % + 4,20 %. (duri – 5)
More than 10 and up to 15	58,50 % + 0,50 %. (duri – 10)
More than 15 and up to 20	61 % + 0,50 %. (duri – 15)
More than 20

6. Paragraphs 4 and 5 of this Article shall only apply as of the first date of public disclosure, by the undertaking corresponding to the exposure, of the report on its solvency and financial condition referred to in Article 51 of Directive 2009/138/EC. Before that date, if a credit assessment by a nominated ECAI is available for the exposures, Article 176 of this Regulation shall apply, otherwise, the exposures shall be assigned the same risk factor as the ones that would result from the application of paragraph 4 of this Article to exposures to an insurance or reinsurance undertaking whose solvency ratio is 100 %.

7. Exposures in the form of bonds and loans to a third country insurance or reinsurance undertaking for which a credit assessment by a nominated ECAI is not available, situated in a country whose solvency regime is deemed equivalent to that laid down in Directive 2009/138/EC in accordance with Article 227 of Directive 2009/138/EC, and which complies with the solvency requirements of that third-country, shall be assigned the same risk factor as the ones that would result from the application of paragraph 4 of this Article to exposures to an insurance or reinsurance undertaking whose solvency ratio is 100 %.

8. Exposures in the form of bonds and loans to credit institutions and financial institutions within the meaning of points (1) and (26) of Article 4(1) of Regulation (EU) No 575/2013 which comply with the solvency requirements set out in Directive 2013/36/EU and Regulation (EU) No 575/2013, for which a credit assessment by a nominated ECAI is not available, shall be assigned the same risk factor as the ones that would result from the application of paragraph 4 of this Article to exposures to an insurance or reinsurance undertaking whose solvency ratio is 100 %.

9. The capital requirement for spread risk on credit derivatives where the underlying financial instrument is a bond or a loan to any exposure listed in paragraph 2 shall be nil.

[F6 10. STS securitisation positions which fulfil the criteria set out in Article 243 of Regulation (EU) No 575/2013 and which are fully, unconditionally and irrevocably guaranteed by the European Investment Fund or the European Investment Bank, where the guarantee meets the requirements set out in Article 215, shall be assigned a risk factor stress _i of 0 %.]

[F7 10a. Notwithstanding paragraph 10, securitisations issued before 1 January 2019 that qualify as type 1 securitisations in accordance with paragraph 10 in the version in force on 31 December 2018 shall be assigned a risk factor stress _i of 0 % even where those securitisations are not STS securitisations which fulfil the requirements set out in Article 243 of Regulation (EU) No 575/2013.]

[F1 11. Exposures in the form of bonds and loans that fulfil the criteria set out in paragraph 12 shall be assigned a risk factor stress _i depending on the credit quality step and the duration of the exposure according to the following table:

Credit quality step		0		1		2		3
Duration ( dur i )	stress i	a i	b i	a i	b i	a i	b i	a i	b i
up to 5	b i · dur i	—	0,64 %	—	0,78 %	—	1,0 %	—	1,67 %
More than 5 and up to 10	a i + b i · ( dur i – 5)	3,2 %	0,36 %	3,9 %	0,43 %	5,0 %	0,5 %	8,35 %	1,0 %
More than 10 and up to 15	a i + b i · ( dur i – 10)	5,0 %	0,36 %	6,05 %	0,36 %	7,5 %	0,36 %	13,35 %	0,67 %
More than 15 and up to 20	a i + b i · ( dur i – 15)	6,8 %	0,36 %	7,85 %	0,36 %	9,3 %	0,36 %	16,7 %	0,67 %
More than 20	min[ a i + b i · ( dur i – 20);1]	8,6 %	0,36 %	9,65 %	0,36 %	11,1 %	0,36 %	20,05 %	0,36 %

12. The criteria for exposures that are assigned a risk factor in accordance with paragraph 11 shall be:

(a) the exposure relates to a qualifying infrastructure investment that meets the criteria set out in Article 164a;

(b) the exposure is not an asset that fulfils the following conditions:

• (b) it is assigned to a matching adjustment portfolio in accordance with Article 77b(2) of Directive 2009/138/EC,

• it has been assigned a credit quality step between 0 and 2;

(c) a credit assessment by a nominated ECAI is available for the exposure;

(d) the exposure has been assigned a credit quality step between 0 and 3.

13. Exposures in the form of bonds and loans that meet the criteria set out in paragraph 12(a) and (b), but do not meet the criteria set out in paragraph 12(c), shall be assigned a risk factor stress _i equivalent to credit quality step 3 and the duration of the exposure in accordance with the table set out in paragraph 11.]

[F3 14. Exposures in the form of bonds and loans that fulfil the criteria set out in paragraph 15 shall be assigned a risk factor stress _i depending on the credit quality step and the duration of the exposure according to the following table:

Credit quality step		0		1		2		3
Duration ( dur i )	stress i	a i	b i	a i	b i	a i	b i	a i	b i
up to 5	b i · dur i	—	0,68 %	—	0,83 %	—	1,05 %	—	1,88 %
More than 5 and up to 10	a i + b i · ( dur i – 5)	3,38 %	0,38 %	4,13 %	0,45 %	5,25 %	0,53 %	9,38 %	1,13 %
More than 10 and up to 15	a i + b i · ( dur i – 10)	5,25 %	0,38 %	6,38 %	0,38 %	7,88 %	0,38 %	15,0 %	0,75 %
More than 15 and up to 20	a i + b i · ( dur i – 15)	7,13 %	0,38 %	8,25 %	0,38 %	9,75 %	0,38 %	18,75 %	0,75 %
More than 20	min[ a i + b i · ( dur i – 20);1]	9,0 %	0,38 %	10,13 %	0,38 %	11,63 %	0,38 %	22,50 %	0,38 %

15. The criteria for exposures that are assigned a risk factor in accordance with paragraph 14 shall be:

(a) the exposure relates to a qualifying infrastructure corporate investment that meets the criteria set out in Article 164b;

(b) the exposure is not an asset that fulfils the following conditions:

• (b) it is assigned to a matching adjustment portfolio in accordance with Article 77b(2) of Directive 2009/138/EC,

• it has been assigned a credit quality step between 0 and 2;

(c) a credit assessment by a nominated ECAI is available for the infrastructure entity.

(d) the exposure has been assigned a credit quality step between 0 and 3.

16. Exposures in the form of bonds and loans that meet the criteria set out in paragraph 15(a) and (b), but do not meet the criteria set out in paragraph 15(c), shall be assigned a risk factor stress _i equivalent to credit quality step 3 and the duration of the exposure in accordance with the table set out in paragraph 14.]

Textual Amendments

F1 Inserted by Commission Delegated Regulation (EU) 2016/467 of 30 September 2015 amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings (Text with EEA relevance).

F3 Inserted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

F6 Substituted by Commission Delegated Regulation (EU) 2018/1221 of 1 June 2018 amending Delegated Regulation (EU) 2015/35 as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by insurance and reinsurance undertakings (Text with EEA relevance).

F7 Inserted by Commission Delegated Regulation (EU) 2018/1221 of 1 June 2018 amending Delegated Regulation (EU) 2015/35 as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardised securitisations held by insurance and reinsurance undertakings (Text with EEA relevance).

Article 181 U.K. 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:

Credit quality step	0	1	2	3	4	5	6
Reduction factor	45 %	50 %	60 %	75 %	100 %	100 %	100 %

[F2 For assets in the assigned portfolio for which no credit assessment by a nominated ECAI is available, and for qualifying infrastructure assets and for qualifying infrastructure corporate assets that have been assigned credit quality step 3, the reduction factor shall be 100 %.]

Textual Amendments

F2 Substituted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).

Subsection 6 U.K. Market risk concentrations sub-module

Article 182 U.K. Single name exposure

1. The capital requirement for market risk concentration shall be calculated on the basis of single name exposures. For this purpose exposures to undertakings which belong to the same corporate group shall be treated as a single name exposure. Similarly, immovable properties which are located in the same building shall be considered as a single immovable property.

2. The exposure at default to a counterparty shall be the sum of the exposures to this counterparty.

3. The exposure at default to a single name exposure shall be the sum of the exposures at default to all counterparties that belong to the single name exposure.

4. The weighted average credit quality step on a single name exposure shall be equal to the rounded-up average of the credit quality steps of all exposures to all counterparties that belong to the single name exposure, weighted by the value of each exposure.

5. For the purposes of paragraph 4, exposures for which a credit assessment by a nominated ECAI is available, shall be assigned a credit quality step in accordance with Chapter 1 Section 2 of this Title. Exposures for which a credit assessment by a nominated ECAI is not available shall be assigned to credit quality step 5.

Article 183 U.K. Calculation of the capital requirement for market risk concentration

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

where:

(a)

the sum covers all single name exposures i;

(b)

Conc_i denotes the capital requirement for market risk concentration on a single name exposure i.

2. For each single name exposure i, the capital requirement for market risk concentration Conc_i shall be equal to the loss in the basic own funds that would result from an instantaneous decrease in the value of the assets corresponding to the single name exposure i equal to the following:

where:

(a)

XS_i is the excess exposure referred to in Article 184;

(b)

g_i is the risk factor for market risk concentration referred to in Articles 186 and 187;

Article 184 U.K. Excess exposure

1. The excess exposure on a single name exposure i shall be equal to the following:

where:

(a)

E_i denotes the exposure at default to single name exposure i that is included in the calculation base of the market risk concentrations sub-module;

(b)

Assets denotes the calculation base of the market risk concentrations sub-module;

(c)

CT_i denotes the relative excess exposure threshold referred to in Article 185.

2. The calculation base of the market risk concentration sub-module Assets shall be equal to the value of all assets held by an insurance or reinsurance undertaking, excluding the following:

(a) assets held in respect of life insurance contracts where the investment risk is fully borne by the policy holders;

(b) exposures to a counterparty which belongs to the same group as the insurance or reinsurance undertaking, provided that all of the following conditions are met:

(i)

the counterparty is an insurance or reinsurance undertaking, an insurance holding company, a mixed financial holding company or an ancillary services undertaking;

(ii)

the counterparty is fully consolidated in accordance with Article 335(1)(a);

(iii)

the counterparty is subject to the same risk evaluation, measurement and control procedures as the insurance or reinsurance undertaking;

(iv)

the counterparty is established in the Union;

(v)

there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities from the counterparty to the insurance or reinsurance undertaking;

(c) the value of the participations as referred to in Article 92(2) of Directive 2009/138/EC in financial and credit institutions that is deducted from own funds pursuant to Article 68 of this Regulation;

(d) exposures included in the scope of the counterparty default risk module;

(e) deferred tax assets;

(f) intangible assets.

3. The exposure at default on a single name exposure i shall be reduced by the amount of the exposure at default to counterparties belonging to that single name exposure and for which the risk factor for market risk concentration referred to in Articles 168 and 187 is 0 %.

Article 185 U.K. Relative excess exposure thresholds

Each single name exposure i shall be assigned, in accordance with the following table, a relative excess exposure threshold depending on the weighted average credit quality step of the single name exposure i, calculated in accordance with Article 182(4).

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Relative excess exposure threshold CT i	3 %	3 %	3 %	1,5 %	1,5 %	1,5 %	1,5 %

Article 186 U.K. Risk factor for market risk concentration

1. Each single name exposure i shall be assigned, in accordance with the following table, a risk factor g_i for market risk concentration depending on the weighted average credit quality step of the single name exposure i, calculated in accordance with Article 182(4).

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Risk factor gi	12 %	12 %	21 %	27 %	73 %	73 %	73 %

2. Single name exposures to an insurance or reinsurance undertaking for which a credit assessment by a nominated ECAI is not available and where the undertaking meets its Minimum Capital Requirement, shall be assigned a risk factor g_i for market risk concentration depending on the undertaking's solvency ratio in accordance with the following table:

Solvency ratio	95 %	100 %	122 %	175 %	196 %
Risk factor gi	73 %	64,5 %	27 %	21 %	12 %

Where the solvency ratio falls in between the solvency ratios set out in the table above, the value of g_i shall be linearly interpolated from the closest values of g_i corresponding to the closest solvency ratios set out in the table above. Where the solvency ratio is lower than 95 %, the risk factor g_i shall be equal to 73 %. Where the solvency ratio is higher than 196 %, the risk factor g_i shall be equal to 12 %.

For the purposes of this paragraph, ‘solvency ratio’ denotes the ratio of the eligible amount of own funds to cover the Solvency Capital Requirement and the Solvency Capital Requirement, using the latest available values.

3. Single name exposures to insurance or reinsurance undertakings which do not meet their Minimum Capital Requirement, shall be assigned a risk factor g_i for market risk concentration equal to 73 %.

Paragraphs 2 and 3 of this Article shall only apply as of the first date of public disclosure, by the undertaking corresponding to the exposure, of the report on its solvency and financial condition referred to in Article 51 of Directive 2009/138/EC. Before that date, if a credit assessment by a nominated ECAI is available for the single name exposure, paragraph 1 shall apply, otherwise, the exposures shall be assigned a risk factor g_i of 64,5 %.

4. Single name exposures to a third country insurance or reinsurance undertaking, for which a credit assessment by a nominated ECAI is not available, situated in a country whose solvency regime is deemed equivalent pursuant to Article 227 of Directive 2009/138/EC, and which complies with the solvency requirements of those that third-country, shall be assigned a risk factor g_i of 64,5 %.

5. Single name exposures to credit institutions and financial institutions within the meaning of points (1) and (26) of Article 4(1) of Regulation (EU) No 575/2013 and which comply with the solvency requirements set out in of Directive 2013/36/EU and Regulation (EU) No 575/2013, for which a credit assessment by a nominated ECAI is not available, shall be assigned a risk factor g_i of 64,5 %.

6. Single name exposures other than those identified in paragraphs 1 to 5 shall be assigned a risk factor g_i for market risk concentration of 73 %.

Article 187 U.K. Specific exposures

1. Exposures in the form of bonds as referred to Article 52(4) of Directive 2009/65/EC (covered bonds) shall be assigned a relative excess exposure threshold CT_i of 15 %, provided that the corresponding exposures in the form of covered bonds have been assigned to credit quality step 0 or 1. Exposures in the form of covered bonds shall be considered as single name exposures, regardless of other exposures to the same counterparty as the issuer of the covered bonds, which constitute a distinct single name exposure.

2. Exposures to a single immovable property shall be assigned a relative excess exposure threshold CT_i of 10 % and a risk factor g_i for market risk concentration of 12 %.

3. Exposures to the following shall be assigned a risk factor g_i for market risk concentration of 0 %:

(a) the European Central Bank;

(b) Member States' central government and central banks denominated and funded in the domestic currency of that central government and central bank;

(c) multilateral development banks referred to in Article 117(2) of Regulation (EU) No 575/2013;

(d) international organisations referred to in Article 118 of Regulation (EU) No 575/2013.

Exposures that are fully, unconditionally and irrevocably guaranteed by one of the counterparties mentioned in points (a) to (d), where the guarantee meets the requirements set out in Article 215, shall also be assigned a risk factor g_i for market risk concentration of 0 %.

4. Exposures to central governments and central banks other than those referred to in point (b) of paragraph 3, denominated and funded in the domestic currency of that central government and central bank, shall be assigned a risk factor g_i for market risk concentration depending on their weighted average credit quality steps, in accordance with the following table.

Weighted average credit quality step of single name exposure i	0	1	2	3	4	5	6
Risk factor gi	0 %	0 %	12 %	21 %	27 %	73 %	73 %

5. Exposures in the form of bank deposits shall be assigned a risk factor g_i for market risk concentration of 0 %, provided they meet all of the following requirements:

(a) the full value of the exposure is covered by a government guarantee scheme in the Union;

(b) the guarantee covers the insurance or reinsurance undertaking without any restriction;

(c) there is no double counting of such guarantee in the calculation of the Solvency Capital Requirement.

Subsection 7 U.K. Currency risk sub-module

Article 188 U.K.

1. The capital requirement for currency risk referred to in point (e) of the second subparagraph of Article 105(5) of Directive 2009/138/EC shall be equal to the sum of the capital requirements for currency risk for each foreign currency. Investments in type 1 equities referred to in Article 168(2) and type 2 equities referred to in Article 168(3) which are listed in stock exchanges operating with different currencies shall be assumed to be sensitive to the currency of its main listing. Type 2 equities referred to in Article 168(3) which are not listed shall be assumed to be sensitive to the currency of the country in which the issuer has its main operations. Immovable property shall be assumed to be sensitive to the currency of the country in which it is located.

For the purposes of this Article, foreign currencies shall be currencies other than the currency used for the preparation of the insurance or reinsurance undertaking's financial statements (‘the local currency’).

2. For each foreign currency, the capital requirement for currency risk shall be equal to the larger of the following capital requirements:

(a) the capital requirement for the risk of an increase in value of the foreign currency against the local currency;

(b) the capital requirement for the risk of a decrease in value of the foreign currency against the local currency.

3. The capital requirement for the risk of an increase in value of a foreign currency against the local currency shall be equal to the loss in the basic own funds that would result from an instantaneous increase of 25 % in the value of the foreign currency against the local currency.

4. The capital requirement for the risk of a decrease in value of a foreign currency against the local currency shall be equal to the loss in the basic own funds that would result from an instantaneous decrease of 25 % in the value of the foreign currency against the local currency.

5. For currencies which are pegged to the euro, the 25 % factor referred to in paragraphs 3 and 4 of this Article may be adjusted in accordance with the implementing act adopted pursuant to point (d) of Article 109a(2) of Directive 2009/138/EC, provided that all of the following conditions are met:

(a) the pegging arrangement shall ensure that the relative changes in the exchange rate over a one-year period do not exceed the relative adjustments to the 25 % factor, in the event of extreme market events, that correspond to the confidence level set out in Article 101(3) of Directive 2009/138/EC;

(b) one of the following criteria is complied with:

(i)

participation of the currency in the European Exchange Rate Mechanism (ERM II);

(ii)

existence of a decision from the Council which recognises pegging arrangements between this currency and the euro;

(iii)

establishment of the pegging arrangement by the law of country establishing the country's currency.

For the purposes of point (a), the financial resources of the parties that guarantee the pegging shall be taken into account.

6. The impact of an increase or a decrease in the value of a foreign currency against the local currency on the value of participations as defined in Article 92(2) of Directive 2009/138/EC in financial and credit institutions, shall be considered only on the value of the participations that are not deducted from own funds pursuant to Article 68 of this Regulation. The part deducted from own funds shall be considered only to the extent such impact increases the basic own funds.

7. Where the larger of the capital requirements referred to in points (a) and (b) of paragraph 2 and the largest of the corresponding capital requirements calculated in accordance with Article 206(2) are not based on the same scenario, the capital requirement for currency risk on a given currency shall be the capital requirement referred to in points (a) or (b) of paragraph 2 for which the underlying scenario results in the largest corresponding capital requirement calculated in accordance with Article 206(2).

(1)

[F2 Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds ( OJ L 115, 25.4.2013, p. 18 ).]

(2)

[F2 Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds ( OJ L 115, 25.4.2013, p. 1 ).]

Textual Amendments

F2 Substituted by Commission Delegated Regulation (EU) 2017/1542 of 8 June 2017 amending Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (Text with EEA relevance).