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

Subsection 3 U.K. Equity risk sub-module

Article 168 U.K. General provisions

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 and a risk sub-module for type 2 equities.

2. Type 1 equities shall comprise equities listed in regulated markets in the countries which are members of the European Economic Area (EEA) or the Organisation for Economic Cooperation and Development (OECD).

3. Type 2 equities shall comprise equities listed in stock exchanges in countries which are not members of the EEA or the OECD, equities which are not listed, 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).

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

where:

(a)

SCR_{type 1 equities} denotes the capital requirement for type 1 equities;

(b)

SCR_{type 2 equities} denotes the capital requirement for type 2 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:

(a) 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 held within collective investment undertakings which are qualifying venture capital funds as referred to in Article 3(b) of Regulation (EU) No 345/2013 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)

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.

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).

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:

(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)(b) 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:

(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)(b) 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).

Article 171 U.K. Strategic equity investments

For the purposes of Article 169(1)(a) and (2)(a) and of Article 170(1)(b) and (2)(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.

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 %.

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

The transitional measure for standard equity risk set out in Article 308b(12) of Directive 2009/138/EC shall only be applied to type 1 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.

(1)

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).