EIOPA · 2029
Technical Provisions (TPs)
- Regulation
- (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
- Article
- 105
- Topic
- Technical Provisions (TPs)
- Submitted
- 2019-09-27
- Answered
- 2021-06-25
Question
Expenses in the technical provision are increased yearly with the HCIP inflation. To hedge the inflation risk a indexed linked bond based on the HCIP inflation is bought. Is it possible to take this hedge into account in the SCR expenses given the formulation in the DA: loss in basic own funds due to an increase of 1 percentage point to the expense inflation rate (expressed as a percentage) used for the calculation of technical provisions.
Background
Article 105 (3) (d) directive andArticle 140 Life-expense risk sub-module delegated act
Answer
Based on Article 83(4) Commission Delegated Regulation (EU) 2015/35 the impact of the expense scenarios on the value of any risk mitigation instruments that meet the requirements set out in Article 209 to 215 shall be taken into account. One crucial requirement in accordance with Article 210(2) is the absence of material basis risk. The level of general inflation is only one driver for the development of expenses. Moreover, the prices of index-linked bonds depend in a non-linear way on actual and expected inflation rates. Therefore it can be expected for most insurers that there is material basis risk.
This Q&A is published by European Insurance and Occupational Pensions Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.
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