Commission Delegated Regulation (EU) 2015/35Show full title

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.

[F1 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 %]

[F1 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)]

[F2 4a. Notwithstanding paragraph 4, bonds and loans that are assigned to a credit quality step in accordance with paragraph 1 or 2 of Article 176a or paragraph 1 of Article 176c 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 assigned in accordance with the table set out in paragraph 3 of this Article.]

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 [F3 Article 68(6) of this Regulation], 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

F1 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).

F2 Inserted by Commission Delegated Regulation (EU) 2019/981 of 8 March 2019 amending Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance).

F3 Words in Art. 176(6) substituted (31.12.2020) by The Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 (S.I. 2019/407), regs. 1(2), 11(24) (as amended by S.I. 2020/1385, regs. 1(2), 54(2) and with savings in S.I. 2019/680, reg. 11)