EIOPA · 2406

Solvency Capital Requirement (SCR)

Regulation
(EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article
188
Topic
Solvency Capital Requirement (SCR)
Submitted
2022-03-20
Answered
2022-06-29

Question

According to Article 188 when calculating SCR for currency risk "Immovable property shall be assumed to be sensitive to the currency of the country in which it is located." In Polish market real estate assets are usually in EUR while local currency is PLN. The currency risk can be hedged by FX contracts thus economically company would be not exposed to that risk. What exactly Article 188 states for? Should SCR for currency risk be calculated assuming that a real estate asset is in PLN instead of EUR? How to treat FX contract which hedge that currency risk within SCR calculation? Changing currency of real estate asset to PLN while leaving FX contract as it is could lead to SCR for currency risk although the risk in reality is hedged.

Answer

As per Article 188(1) the SCR for currency risk should be calculated assuming that a real estate asset located in Poland is sensitive to PLN. Where an undertaking holds FX hedges between EUR and PLN these need to be stressed in the currency risk sub-module.

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.

Similar Q&As

More Q&As on this topic

📋 Track EU financial regulation continuously

Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.

14-day free trial. No credit card required.