Solvency Capital Requirement (SCR)

By way of numerical example could you please explain the implications of paragraph (2) of Article 213 of the Delegated Regulation. This paragraph is limiting the amount of risk mitigation benefit that can be assumed in say market and insurance stresses based on the collateral actually held in the custodian accounts, but its not clear to me how the limitations should be applied. Lets say I have a 100% quota share reinsurance arrangement, where the counterparty is rated less than BBB, but all other risk mitigating criteria are met, and collateral arrangements meet Article 214. Therefore the arrangement meets 213 (1a) and we can treat the reinsurance as risk mitigating. Gross BEL = 4000, Reinsured BEL = 4000, 90% collateralised with collateral held in gilts, so base collateral = 3600 Net Bel = 4000-4000=0 Yields down stress Stressed gross BEL = 8000, stressed collateral = 7000 If the treaty met all risk mitigating criteria then the SCR = 0, as the gross bel and reinsured bel both increase by 4000. However in this case 213(2) applies. SCR = change in BEL - change in collateral = 4000 - 3400 = 600 Longevity stress Stressed gross BEL = 6000, stressed collateral = 3600 SCR = 2000 - 0 = 2000 (in other words under the longevity stress , the existing collateral did not change in value and there was no additional collateral provided by the counterparty)