Solvency Capital Requirement (SCR)

As credit linked notes can have widely different features the treatment no general answer is possible and the treatment has to be determined on a case by case basis.The question whether an (implicit) short position in a credit derivative would be in line with the requirements of Article 132 Solvency II (in particular with paragraph 4) is not discussed in the following.In case  1. Article 84(2) DA was applicable; and2. the Credit Linked Note could be represented as a simple combination of a long position in a corporate bond and a short position in a Credit Default Swap (this would for example not be the case if there was no bankruptcy remoteness from the issuer)the corporate bond would have to be included in the calculation of the capital requirement for spread risk in accordance with Article 176 DA and the short position in the Credit Default Swap in accordance with Article 179 DA.The treatment foreseen in the suggested Alternative 2 is not foreseen in the DA.