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Question 1:How should we interpret article 166 and 167 in the DR and 1.14 in guideline 4? Is it enough to recalculate the value of the bond based on e.g. five different maturities, say 2Y, 5Y, 10Y, 20Y and 30Y, where the key rate sensitivities are divided into these buckets, or is it necessary to stress every single maturity on the relevant interest rate curve, i.e. perform a full repricing of the asset?
Question 2:Is article 90-112 in the Delegated Regulation a closed list of simplified calculations that the undertakings are allowed to use?• If yes, is this mentioned somewhere in the legislation? Article 109 in the directive mentions “simplified calculations”, but is this referring to the simplified calculations defined in article 90-112 or is it a more general term?• If no, can the proportionality principle in article 88 be used by an undertaking to argue for the use of approximations with the argument of nature, scale and complexity of a particular risk?
Question 3:Is it correctly understood that the Delegated Regulation does not open up for the use of interest rate durations in the interest rate risk submodule except for any relevant simplified calculation in article 90-112?

European Insurance and Occupational Pensions Authority · Accepted Answer

Q1:No, it is not enough.Unless the conditions for the application of Article 103 DA are met, the capital requirement for interest rate risk has to equal the value that is calculated in accordance with Article 166 and 167 DA (i.e. based on the loss in basic own funds resulting from the shock to the basic risk-free interest rates for all maturities set out in these articles). The results of the described calculation with a selected number of maturities will in all likelihood deviate from this value.Q2:Yes, Articles 90-112 of the Delegated Regulation constitute a closed list of simplified calculations that the undertakings are allowed to use, provided they comply with Articles 88 and 89 (if captive).Although the term "closed list" is not mentioned in the Regulation, the Directive Article 111(1)(l) requires the Commission to adopt delegated acts for the simplified calculations and there are no other Articles in the Regulation adopted by the Commission that contain other simplified calculations.Article 109 of the Solvency II Directive is mentioned in Article 88(1) of the Solvency II Delegated Regulation and accordingly the term "simplified calculations" in the Directive should be interpreted as a reference to the simplified calculations in the Delegated Regulation.
Q3:  Yes, the simplified calculation of the capital requirement for interest rate risk for captive insurance or reinsurance undertakings can be used according to Article 103 of the Delegated Regulation, provided the undertaking complies with Articles 88 and 89 (if captive).

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