Solvency Capital Requirement (SCR)

As per article 83(4) of the Commission Delegated Regulation (EU) 2015/35, where a risk-mitigation instrument complies with Articles 209 to 215 then the change in value of that instrument should be included within the relevant module or sub-module.  This means that if a credit derivative hedges a risk on a particular investment and complies with Articles 209 to 215, then the changes in values of the investment and of the credit derivative resulting from the spread shock should be included when determining the capital requirement for spread risk on bonds and loans respectively on securitisation positions. As the capital requirements for spread risk differ between underlying investments and credit derivatives, Article 179(3) clarifies that – in the case of a risk-mitigating credit derivative where no material basis risk exists – the derivative is not included in the calculation of the capital requirement for spread risk on credit derivatives. The following table illustrates the possible cases (*). The references are to Articles in the Commission Delegated Regulation (EU) 2015/35.