Other

The treatment of Article 197(5) is currently unclear with respect to the following:•    Counterparty default risk exposures within the collateral account are not considered in the adjustment for market risk. It is unclear if, and how a risk adjustment for counterparty default risk should be taken into account in the determination of the risk-adjusted value of collateral;•    Recoverables from reinsurance contracts itself are subject to market risk (e.g. interest rate risk) as well. It is unclear whether the interest rate risk on the reinsurance recoverable towards the reinsurer should be taken into account in the hypothetical capital requirements for the adjustment for market risk on the collateral of the reinsurance agreement as described in Article 197(5)(a) and 197(5)(b).•    Article 197(5)(b) describes a situation in which the assets held as collateral are included in the calculation. However, in a funds-withheld situation, the assets held as collateral are on the balance sheet mirrored by a payable towards the reinsurer as a liability. It is unclear whether this liability towards the reinsurer should be included in the hypothetical calculation as described in Article 197(5)(a) and 197(5)(b).