Solvency Capital Requirement (SCR)

Question

I have a question on the capital treatment / SCR of preferred shares/stocks/equities. Should I use the spread or the equity risk sub module. They are indeed often considered as hybrid debt/equity instruments. 
The cash flow and valuation is more akin to a debt rather than equity though, and other capital regimes (US RBC, Bermuda BSCR) apply a capital treatment similar to bonds and loans, using the rating (when available) of the preferred share/stock/equity. 
However, I haven't seen any explicit guidance for the SCR treatment under Solvency II and the fact that equity is in the name often leads people to the conclusion that the equity SCR should be used. 
What would be the appropriate market risk module to use: spread or equity?

European Insurance and Occupational Pensions Authority · Accepted Answer

This question has been rejected because the issue it deals with is already addressed in Guideline 5 of the Guidelines on the treatment of market and counterparty risk exposures in the standard formula.

Based on EIOPA's guidelines on the treatment of market and counterparty risk exposures in the standard formula, and more specifically on guideline 5 on investments with equity and debt instrument characteristics:

If the asset can be considered as the composite of discrete debt and equity components, then each component should be separately considered in the relevant sub-module;
	If it is not possible to consider the asset as the composite of separate components, the determination of which of the standard formula risk sub-modules apply depends on whether the debt or equity characteristics predominate in an economic sense.

Solvency Capital Requirement (SCR)

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