Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) Text with EEA relevance

• (b) in relation to the reinsurance obligations of the captive insurance or captive reinsurance undertaking, all insured persons and beneficiaries of the insurance contracts underlying the reinsurance obligations are legal entities of the group of which the captive insurance or captive reinsurance undertaking is part;

• (c) the insurance obligations and the insurance contracts underlying the reinsurance obligations of the captive insurance or captive reinsurance undertaking do not relate to any compulsory third party liability insurance.

Article 89a

Simplified calculation for immaterial risk module or sub-module

For the purposes of the first subparagraph, insurance and reinsurance undertakings may use a simplified calculation, provided that they comply with Article 88 and 89 of this Regulation, but not for the market risk module or any risk sub-module within that risk module.

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where:

• (a) Image omitted; see official source denotes the solvency capital requirement for a given risk-module or sub-module k which meets the conditions set out in Article 109(2) of Directive 2009/138/EC, at the reference date t;

• (b) Image omitted; see official source denotes the outcome of the calculation of the risk-module or sub-module k, referred to in paragraph 1;

• (c) Image omitted; see official source denotes the undertaking-specific volume measure for the risk module or sub-module k, at the reference date t;

• (d) f ^k denotes the risk factor for the risk module or sub-module k, calculated in accordance with paragraph 3.

For the purposes of the first subparagraph, point (c), the insurance or reinsurance undertaking shall justify, to the satisfaction of the supervisory authority, the appropriateness of the undertaking-specific volume measure used.

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where Image omitted; see official source denotes the undertaking-specific volume measure for the risk module or sub-module k, at the reference date of the calculation of paragraph 1.

Article 90

Simplified calculation for captive insurance and reinsurance undertakings of the capital requirement for non-life premium and reserve risk

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,

where the s covers all segments set out in Annex II.

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where:

• (a) V(prem,s) denotes the volume measure for premium risk of segment s calculated in accordance with paragraph 3 of Article 116;

• (b) V(res,s) denotes the volume measure for reserve risk of a segment calculated in accordance with paragraph 6 of Article 116.

Article 90a

Simplified calculation for discontinuance of insurance policies in the non-life lapse risk sub-module

For the purposes of point (a) of Article 118(1), where Article 88 is complied with, insurance and reinsurance undertakings may determine the insurance policies for which discontinuance would result in an increase of technical provisions without the risk margin on the basis of groups of policies, provided that the grouping complies with the requirements laid down in points (a), (b) and (c) of Article 35.

Article 90b

Simplified calculation of the sum insured for natural catastrophe risks

Article 90c

Simplified calculation of the capital requirement for fire risk

SCRfire = max(SCRfirei; SCRfirec; SCRfirer)

where:

• a) SCRfirei denotes the largest industrial fire risk concentration;

• b) SCRfirec denotes the largest commercial fire risk concentration;

• c) SCRfirer denotes the largest residential fire risk concentration.

SCRfirei = max(E 1,i; E 2,i; E 3,i; E 4,i; E 5,i)

where Ek,i denotes the total exposure within the perimeter of the k-th largest industrial fire risk exposure.

SCRfirec = max(E 1,c; E 2,c; E 3,c; E 4,c; E 5,c)

where Ek,c denotes the total exposure within the perimeter of the k-th largest commercial fire risk exposure.

SCRfirer = max(E 1,r; E 2,r; E 3,r; E 4,r; E 5,r; θ)

where:

• (a) Ek,r denotes the total exposure within the perimeter of the k-th largest residential fire risk exposure;

• (b) θ denotes the market share based residential fire risk exposure.

• (a) in relation to each building, the insurance or reinsurance undertaking has obligations in lines of business 7 and 19 set out in Annex I which cover damage due to fire or explosion, including as a result of terrorist attacks;

• (b) each building is partly or fully located within a radius of 200 meters around the industrial, commercial or residential building with the k-th largest sum insured after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles.

For the purposes of determining the sum insured with respect to a building, insurance and reinsurance undertakings shall take into account all reinsurance contracts and special purpose vehicles that would pay out in case of insurance claims related to that building. Reinsurance contracts and special purpose vehicles that are subject to conditions not related to that building shall not be taken into account.

θ = SIav · 500 · max(0,05; maxc(marketSharec))

where:

• (a) SIav is the average sum insured by the insurance or reinsurance undertaking with respect to residential property;

• (b) c denotes all countries where the insurance or reinsurance undertaking has obligations in lines of business 7 and 19 set out in Annex I covering residential property;

• (c) marketSharec is the market share of the insurance or reinsurance undertaking in country c related to obligations in those lines of business covering residential property.

Article 91

Simplified calculation of the capital requirement for life mortality risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for life mortality risk as follows:

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where, with respect to insurance and reinsurance policies with a positive capital at risk:

• (a) CARk denotes the total capital at risk in year k, meaning the sum over all contracts of the higher of zero and the difference, in relation to each contract, between the following amounts:
• (i) the sum of:
• — the amount that the insurance or reinsurance undertaking would pay in year k in the event of the death of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• — the expected present value of amounts not covered in the previous indent that the insurance or reinsurance undertaking would pay after year k in the event of the immediate death of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• (ii) the best estimate of the corresponding obligations in year k after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;

• (b) q denotes the expected average mortality rate over all the insured persons and over all future years weighted by the sum insured;

• (c) n denotes the modified duration in years of payments payable on death included in the best estimate;

• (d) ik denotes the annualized spot rate for maturity k of the relevant risk-free term structure as referred to in Article 43.

Article 92

Simplified calculation of the capital requirement for life longevity risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for life longevity risk calculated as follows:

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where, with respect to the policies referred to in Article 138(2):

• (a) q denotes the expected average mortality rate of the insured persons during the following 12 months weighted by the sum insured;

• (b) n denotes the modified duration in years of the payments to beneficiaries included in the best estimate;

• (c) BElong denotes the best estimate of the obligations subject to longevity risk.

Article 93

Simplified calculation of the capital requirement for life disability-morbidity risk

Where 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for life disability-morbidity risk as follows:

SCRdisability-morbidity =	Image omitted; see official source 0,35 · CAR 1 · d 1 + 0,25 · 1,1(n – 3)/2 · (n – 1) · CAR 2 · d 2 + 0,2 · 1,1(n –1)/2 · t · n · BEdis

where with respect to insurance and reinsurance policies with a positive capital at risk:

• (a) CAR1 denotes the total capital at risk, meaning the sum over all contracts of the higher of zero and the difference between the following amounts:
• (i) the sum of:
• — the amount that the insurance or reinsurance undertaking would currently pay in the event of the death or disability of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• — the expected present value of amounts not covered in the previous indent that the insurance or reinsurance undertaking would pay in the future in the event of the immediate death or disability of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• (ii) the best estimate of the corresponding obligations after deduction of the amounts recoverable form reinsurance contracts and special purpose vehicles;

• (b) CAR2 denotes the total capital at risk as defined in point (a) after 12 months;

• (c) d1 denotes the expected average disability-morbidity rate during the following 12 months weighted by the sum insured;

• (d) d2 denotes the expected average disability-morbidity rate in the 12 months after the following 12 months weighted by the sum insured;

• (e) n denotes the modified duration of the payments on disability-morbidity included in the best estimate;

• (f) t denotes the expected termination rates during the following 12 months;

• (g) BEdis denotes the best estimate of obligations subject to disability-morbidity risk.

Article 94

Simplified calculation of the capital requirement for life-expense risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for life-expense risk as follows:

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where:

• (a) EI denotes the amount of expenses incurred in servicing life insurance or reinsurance obligations other than health insurance and reinsurance obligations during the last year;

• (b) n denotes the modified duration in years of the cash flows included in the best estimate of those obligations;

• (c) i denotes the weighted average inflation rate included in the calculation of the best estimate of those obligations, where the weights are based on the present value of expenses included in the calculation of the best estimate for servicing existing life obligations.

Article 95

Simplified calculation of the capital requirement for permanent changes in lapse rates

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where:

• (a) lup denotes the higher of the average lapse rate of the policies with positive surrender strains and 67 %;

• (b) nup denotes the average period in years over which the policies with a positive surrender strains run off;

• (c) Sup denotes the sum of positive surrender strains.

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where:

• (a) ldown denotes the higher of the average lapse rate of the policies with negative surrender strains and 40 %;

• (b) ndown denotes the average period in years over which the policies with a negative surrender strains runs off;

• (c) Sdown denotes the sum of negative surrender strains.

• (a) the amount currently payable by the insurance undertaking on discontinuance by the policy holder, net of any amounts recoverable from policy holders or intermediaries;

• (b) the amount of technical provisions without the risk margin.

Article 95a

Simplified calculation of the capital requirement for risks in the life lapse risk sub-module

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate each of the following capital requirements on the basis of groups of policies, provided that the grouping complies with the requirements laid down in points (a), (b) and (c) of Article 35:

• (a) the capital requirement for the risk of a permanent increase in lapse rates referred to in Article 142(2);

• (b) the capital requirement for the risk of a permanent decrease in lapse rates referred to in Article 142(3);

• (c) the capital requirement for mass lapse risk referred to in Article 142(6).

Article 96

Simplified calculation of the capital requirement for life-catastrophe risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for life-catastrophe risk calculated as follows:

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where:

• (a) the sum includes all policies with a positive capital at risk;

• (b) CARi denotes the capital at risk of the policy i, meaning the higher of zero and the difference between the following amounts:
• (i) the sum of:
• — the amount that the insurance or reinsurance undertaking would currently pay in the event of the death of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• — the expected present value of amounts not covered in the previous indent that the insurance or reinsurance undertaking would pay in the future in the event of the immediate death of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• (ii) the best estimate of the corresponding obligations after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles.

Article 96a

Simplified calculation for discontinuance of insurance policies in the NSLT health lapse risk sub-module

For the purposes of point (a) of Article 150(1), where Article 88 is complied with, insurance and reinsurance undertakings may determine the insurance policies for which discontinuance would result in an increase of technical provisions without the risk margin on the basis of groups of policies, provided that the grouping complies with the requirements laid down in points (a), (b) and (c) of Article 35.

Article 97

Simplified calculation of the capital requirement for health mortality risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for health mortality risk as follows:

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where with respect to insurance and reinsurance policies with a positive capital at risk:

• (a) CARk denotes the total capital at risk in year k, meaning the sum over all contracts of the higher of zero and the difference, in relation to each contract, between the following amounts:
• (i) the sum of:
• — the amount that the insurance or reinsurance undertaking would pay in year k in the event of the death of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• — the expected present value of amounts not covered in the previous indent that the insurance or reinsurance undertaking would pay after year k in the event of the immediate death of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• (ii) the best estimate of the corresponding obligations in year k after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;

• (b) q denotes the expected average mortality rate over all insured persons and over all future years weighted by the sum insured;

• (c) n denotes the modified duration in years of payments payable on death included in the best estimate;

• (d) ik denotes the annualized spot rate for maturity k of the relevant risk-free term structure as referred to in Article 43.

Article 98

Simplified calculation of the capital requirement for health longevity risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for health longevity risk as follows:

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where, with respect to the policies referred to in Article 138(2):

• (a) q denotes the expected average mortality rate of the insured persons during the following 12 months weighted by the sum insured;

• (b) n denotes the modified duration in years of the payments to beneficiaries included in the best estimate;

• (c) BElong denotes the best estimate of the obligations subject to longevity risk.

Article 99

Simplified calculation of the capital requirement for medical expense disability-morbidity risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for medical expense disability-morbidity risk as follows:

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where:

• (a) MP denotes the amount of medical payments during the last year on medical expense insurance or reinsurance obligations during the last year;

• (b) n denotes the modified duration in years of the cash flows included in the best estimate of those obligations;

• (c) i denotes the average rate of inflation on medical payments included in the calculation of the best estimate of those obligations, where the weights are based on the present value of medical payments included in the calculation of the best estimate of those obligations.

Article 100

Simplified calculation of the capital requirement for income protection disability-morbidity risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for income protection disability-morbidity risk as follows:

SCRincome-protection-disability-morbidity =	Image omitted; see official source 0,35 · CAR 1 · d 1 + 0,25 · 1,1(n – 3)/2 · (n – 1) · CAR 2 · d 2 + 0,2 · 1,1(n –1)/2 · t · n · BEdis

where with respect to insurance and reinsurance policies with a positive capital at risk:

• (a) CAR 1 denotes the total capital at risk, meaning the sum over all contracts of the higher of zero and the difference between the following amounts:
• (i) the sum of:
• — the amount that the insurance or reinsurance undertaking would currently pay in the event of the death or disability of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• — the expected present value of amounts not covered in the previous indent that the undertaking would pay in the future in the event of the immediate death or disability of the persons insured under the contract after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles;
• (ii) the best estimate of the corresponding obligations after deduction of the amounts recoverable form reinsurance contracts and special purpose vehicles;

• (b) CAR 2 denotes the total capital at risk as defined in point (a) after 12 months;

• (c) d 1 denotes the expected average disability-morbidity rate during the following 12 months weighted by the sum insured;

• (d) d 2 denotes the expected average disability-morbidity rate in the 12 months after the following 12 months weighted by the sum insured;

• (e) n denotes the modified duration of the payments on disability-morbidity included in the best estimate;

• (f) t denotes the expected termination rates during the following 12 months;

• (g) BEdis denotes the best estimate of obligations subject to disability-morbidity risk.

Article 101

Simplified calculation of the capital requirement for health expense risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for health expense risk as follows:

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where:

• (1) EI denotes the amount of expenses incurred in servicing health insurance and reinsurance obligations during the last year;

• (2) n denotes the modified duration in years of the cash flows included in the best estimate of those obligations;

• (3) i denotes the weighted average inflation rate included in the calculation of the best estimate of these obligations, weighted by the present value of expenses included in the calculation of the best estimate for servicing existing health obligations.

Article 102

Simplified calculation of the capital requirement for SLT health lapse risk

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where:

• (a) lup denotes the higher of the average lapse rate of the policies with positive surrender strains and 83 %;

• (b) nup denotes the average period in years over which the policies with a positive surrender strains run off;

• (c) Sup denotes the sum of positive surrender strains.

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where:

• (a) ldown denotes the average lapse rate of the policies with negative surrender strains;

• (b) ndown denotes the average period in years over which the policies with a negative surrender strains runs off;

• (c) Sdown denotes the sum of negative surrender strains.

• (a) the amount currently payable by the insurance undertaking on discontinuance by the policy holder, net of any amounts recoverable from policy holders or intermediaries;

• (b) the amount of technical provisions without the risk margin.

Article 102a

Simplified calculation of the capital requirement for risks in the SLT health lapse risk sub-module

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate each of the following capital requirements on the basis of groups of policies, provided that the grouping complies with the requirements laid down in points (a), (b) and (c) of Article 35:

• (a) the capital requirement for the risk of a permanent increase in SLT health lapse rates referred to in Article 159(2);

• (b) the capital requirement for the risk of a permanent decrease in SLT health lapse rates referred to in Article 159(3);

• (c) the capital requirement for SLT health mass lapse risk referred to in Article 159(6).

Article 103

Simplified calculation of the capital requirement for interest rate risk for captive insurance or reinsurance undertakings

• (a) the sum, for each currency, of the capital requirements for the risk of an increase in the term structure of interest rates as set out in paragraph 2 of this Article;

• (b) the sum, for each currency, of the capital requirements for the risk of a decrease in the term structure of interest rates as set out in paragraph 3 of this Article.

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where:

• (a) the first sum covers all maturity intervals i set out in paragraph 4 of this Article;

• (b) MVALi denotes the value in accordance with Article 75 of Directive 2009/138/EC of assets less liabilities other than technical provisions for maturity interval i;

• (c) duri denotes the simplified duration of maturity interval i;

• (d) ratei denotes the relevant risk-free rate for the simplified duration of maturity interval i;

• (e) stress(i,up) denotes the relative upward stress of interest rate for simplified duration of maturity interval i;

• (f) the second sum covers all lines of business set out in Annex I of this Regulation;

• (g) BElob denotes the best estimate for line of business lob;

• (h) durlob denotes the modified duration of the best estimate in line of business lob;

• (i) ratelob denotes the relevant risk-free rate for modified duration in line of business lob;

• (j) stress(lob,up) denotes the relative upward stress of interest rate for the modified duration durlob.

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where:

• (a) the first sum covers all maturity intervals i set out in paragraph 4;

• (b) MVALi denotes the value in accordance with Article 75 of Directive 2009/138/EC of assets less liabilities other than technical provisions for maturity interval i;

• (c) duri denotes the simplified duration of maturity interval i;

• (d) ratei denotes the relevant risk-free rate for the simplified duration of maturity interval i;

• (e) stress(i,down) denotes the relative downward stress of interest rate for simplified duration of maturity interval i;

• (f) the second sum covers all lines of business set out in Annex I of this Regulation;

• (g) BElob denotes the best estimate for line of business lob;

• (h) durlob denotes the modified duration of the best estimate in line of business lob;

• (i) ratelob denotes the relevant risk-free rate for modified duration in line of business lob;

• (j) stress(lob, down) denote the relative downward stress of interest rate for modified duration durlob.

• (a) up to the maturity of one year, the simplified duration shall be 0.5 years;

• (b) between maturities of 1 and 3 years, the simplified duration shall be 2 years;

• (c) between maturities of 3 and 5 years, the simplified duration shall be 4 years;

• (d) between maturities of 5 and 10 years, the simplified duration shall be 7 years;

• (e) from the maturity of 10 years onwards, the simplified duration shall be 12 years.

Article 104

Simplified calculation for spread risk on bonds and loans

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where:

• (a) SCRbonds denotes the capital requirement for spread risk on bonds and loans;

• (b) MV^bonds denotes the value in accordance with Article 75 of Directive 2009/138/EC of the assets subject to capital requirements for spread risk on bonds and loans;

• (c) %MVi ^bonds denotes the proportion of the portfolio of the assets subject to a capital requirement for spread risk on bonds and loans with credit quality step i, where a credit assessment by a nominated ECAI is available for those assets;

• (d) %MV^bonds norating denotes the proportion of the portfolio of the assets subject to a capital requirement for spread risk on bonds and loans for which no credit assessment by a nominated ECAI is available;

• (e) duri and durnorating denote the modified duration denominated in years of the assets subject to a capital requirement for spread risk on bonds and loans where no credit assessment by a nominated ECAI is available;

• (f) stressi denotes a function of the credit quality step i and of the modified duration denominated in years of the assets subject to a capital requirement for spread risk on bonds and loans with credit quality step i, set out in paragraph 2;

• (g) ΔLiabul denotes the increase in the technical provisions less risk margin for policies where the policyholders bear the investment risk with embedded options and guarantees that would result from an instantaneous decrease in the value of the assets subject to the capital requirement for spread risk on bonds of:

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Image omitted; see official source , where duri is the modified duration denominated in years of the assets subject to a capital requirement for spread risk on bonds and loans with credit quality step i, and bi is determined in accordance with the following table:

Credit quality step i	0	1	2	3	4	5	6
bi	0,9 %	1,1 %	1,4 %	2,5 %	4,5 %	7,5 %	7,5 %

3. durnorating referred to in point (e) of paragraph 1 and duri referred to in paragraph 2 shall not be lower than 1 year.

Article 105

Simplified calculation for captive insurance or reinsurance undertakings of the capital requirement for spread risk on bonds and loans

Where Articles 88 and 89 are complied with, captive insurance or captive reinsurance undertakings may base the calculation of the capital requirement for spread risk to in Article 176 on the assumption that all assets are assigned to credit quality step 3.

Article 105a

Simplified calculation for the risk factor in the spread risk sub-module and the market risk concentration sub-module

Where Article 88 is complied with, insurance and reinsurance undertakings may assign a bond other than those to be included in the calculations under paragraphs (2) to (16) of Article 180 a risk factor stressi equivalent to credit quality step 3 for the purposes of Articles 176(3) and assign the bond to credit quality step 3 for the purpose of calculating the weighted average credit quality step in accordance with 182(4), provided that all of the following conditions are met:

• (a) credit assessments from a nominated ECAI are available for at least 80 % of the total value of the bonds other than those to be included in the calculations under paragraphs (2) to (16) of Article 180;

• (b) a credit assessment by a nominated ECAI is not available for the bond in question;

• (c) the bond in question provides a fixed redemption payment on or before the date of maturity, in addition to regular fixed or floating rate interest payments;

• (d) the bond in question is not a structured note or collateralised security as referred to in Annex VI to Commission Implementing Regulation (EU) 2015/2450 ([^E0012]);

- (e) the bond in question does not cover liabilities that provide profit participation arrangements, nor does it cover unit-linked or index-linked liabilities, nor liabilities where a matching adjustment is applied.

Article 106

Simplified calculation of the capital requirement for market risk concentration for captive insurance or reinsurance undertakings

Where Articles 88 and 89 are complied with, captive insurance or captive reinsurance undertakings may use all of the following assumptions for the calculation of the capital requirement for concentration risk:

• (1) intra-group asset pooling arrangements of captive insurance or reinsurance undertakings may be exempted from the calculation base referred to in Article 184(2) to the extent that there exist legally enforceable contractual terms which ensure that the liabilities of the captive insurance or reinsurance undertaking will be offset by the intra-group exposures it holds against other entities of the group.

- (2) the relative excess exposure threshold referred to in Article 184(1)(c) shall be equal to 15 % for the following single name exposures:

• (a) exposures to credit institutions that do not belong to the same group and that have been assigned to the credit quality step 2;
• (b) exposures to entities of the group that manages the cash of the captive insurance or reinsurance undertaking that have been assigned to the credit quality step 2.

Article 107

Simplified calculation of the risk mitigating effect for reinsurance arrangements or securitisation

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where

• (a) RMre,all denotes the risk mitigating effect on underwriting risk of the reinsurance arrangements and securitisations for all counterparties calculated in accordance with paragraph 2;

• (b) Recoverablesi denotes the best estimate of amounts recoverable from the reinsurance arrangement or securitisation and the corresponding debtors for counterparty i and Recoverablesall denotes the best estimate of amounts recoverable from the reinsurance arrangements and securitisations and the corresponding debtors for all counterparties.

• (a) the hypothetical capital requirement for underwriting risk of the insurance or reinsurance undertaking if none of the reinsurance arrangements and securitisations exist;

- (b) the capital requirements for underwriting risk of the insurance or reinsurance undertaking.

Article 107a

Simplified calculation of the risk mitigating effect for reinsurance arrangements, derivatives, or securitisations

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where:

• (a) Image omitted; see official source

• (b) Image omitted; see official source denotes the absolute value of the exposure at default of the reinsurance arrangement, special purpose vehicle, securitisation and derivative towards the external counterparty i;

• (c) RMtotal denotes the total risk-mitigating effect calculated in accordance with paragraph 3;

• (d) the sum covers all counterparty exposures.

• (a) the hypothetical basic solvency capital requirement under the assumptions that the counterparty default risk module is equal to 0 and that the reinsurance arrangement, special purpose vehicle, securitisation or derivative included in the scope of the simplified calculation referred to in paragraph 1 did not exist;

- (b) the hypothetical basic solvency capital requirement under the assumptions that the counterparty default risk module is equal to 0.

Article 108

Simplified calculation of the risk mitigating effect for proportional reinsurance arrangements

Where both Article 88 is complied with and the best estimate of amounts recoverable from a proportional reinsurance arrangement and the corresponding debtors for a counterparty i is not negative, insurance and reinsurance undertakings may calculate the risk-mitigating effect on underwriting risk j of the proportional reinsurance arrangement for counterparty i referred to Article 196 as follows:

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where

• (a) BE denotes the best estimate of obligations gross of the amounts recoverable,

• (b) Recoverablesi denotes the best estimate of amounts recoverable from the proportional reinsurance arrangement and the corresponding debtors for counterparty i,

• (c) Recoverablesall denotes the best estimate of amounts recoverable from the proportional reinsurance arrangements and the corresponding debtors for all counterparties

- (d) SCRj denotes the capital requirements for underwriting risk j of the insurance or reinsurance undertaking.

Article 109

Simplified calculations for pooling arrangements

Where Article 88 is complied with, insurance or reinsurance undertakings may use the following simplified calculations for the purposes of Articles 193, 194 and 195:

• (a) The best estimate referred to in Article 194(1)(d) may be calculated as follows: Image omitted; see official source where BEU denotes the best estimate of the liability ceded to the pooling arrangement by the undertaking to the pooling arrangement, net of any amounts reinsured with counterparties external to the pooling arrangement.

• (b) The best estimate referred to in Article 195(c) may be calculated as follows: Image omitted; see official source where BECEP denotes the best estimate of the liability ceded to the external counterparty by the pool, in relation to risk ceded to the pool by the undertaking.

• (c) The risk mitigating effect referred to in Article 195(d) may be calculated as follows: Image omitted; see official source where:
• (i) BECE denotes the best estimate of the liability ceded to the external counterparty by the pooling arrangement as a whole;
• (ii) ΔRMCEP denotes the contribution of all external counterparties to the risk mitigating effect of the pooling arrangement on the underwriting risk of the undertaking;

- (d) The counterparty pool members and the counterparties external to the pool may be grouped according to the credit assessment by a nominated ECAI, provided there are separate groupings for pooling exposures of type A, type B and type C.

Article 110

Simplified calculation — grouping of single name exposures

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the loss-given-default set out in Article 192, including the risk-mitigating effect on underwriting and market risks and the risk-adjusted value of collateral, for a group of single name exposures. In that case, the group of single name exposures shall be assigned the highest probability of default assigned to single name exposures included in the group in accordance with Article 199.

Article 111

Simplified calculation of the risk mitigating effect

Where Article 88 is complied with, insurance or reinsurance undertakings may calculate the risk-mitigating effect on underwriting and market risk of a reinsurance arrangement, securitisation or derivative referred to in Article 196 as the difference between the following capital requirements:

• (a) the sum of the hypothetical capital requirement for the sub-modules of the underwriting and market risk modules of the insurance or reinsurance undertaking affected by the risk-mitigating technique, calculated in accordance with this Section and Sections 2 to 5 of this Chapter but as if the reinsurance arrangement, securitisation or derivative did not exist;

- (b) the sum of the capital requirements for the sub-modules of the underwriting and market risk modules of the insurance or reinsurance undertaking affected by the risk-mitigating technique.

Article 111a

Simplified calculation of the risk-mitigating effect on underwriting risk

For the purposes of Article 196, where Article 88 is complied with and the reinsurance arrangement, securitisation or derivative covers obligations from only one of the segments (segment s) set out in Annex II or, as applicable, Annex XIV, insurance and reinsurance undertakings may calculate the risk-mitigating effect of that reinsurance arrangement, securitisation or derivative on their underwriting risk as follows:

Image omitted; see official source

where:

• a) SCRCAT ^hyp denotes the hypothetical capital requirement for the non-life catastrophe underwriting risk module referred to in Article 119(2), or, as applicable, the hypothetical capital requirement for the health catastrophe risk sub-module referred to in Article 160, that would apply if the reinsurance arrangement, securitisation or derivative did not exist;

• b) SCRCAT ^without denotes the capital requirement for the non-life catastrophe underwriting risk module referred to in Article 119(2) or, as applicable, the capital requirement for the health catastrophe risk sub-module referred to in Article 160;

• c) σs denotes the standard deviation for non-life premium risk of segment s determined in accordance with Article 117(3) or, as applicable, the standard deviation for the NSLT health premium risk of segment s determined in accordance with Article 148(3);

• d) Ps ^hyp denotes the hypothetical volume measure for premium risk of segment s determined in accordance with Article 116(3) or (4), or, as applicable, Article 147(3) or (4), that would apply if the reinsurance arrangement, securitisation or derivative did not exist;

• e) Ps ^without denotes the volume measure for premium risk of segment s determined in accordance with Article 116(3) or (4) or, as applicable, Article 147(3) or (4);

- f) Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement, securitisation or derivative and the corresponding debtors.

Article 112

Simplified calculation of the risk adjusted value of collateral to take into account the economic effect of the collateral

2. Where Articles 88 and 214 of this Regulation are complied with, and where the counterparty requirement referred to in Article 197(1) is met and the third party requirement referred to in Article 197(1) is not met, insurance or reinsurance undertakings may, for the purposes of Article 197, calculate the risk-adjusted value of a collateral provided by way of security as referred to in Article 1(26)(b), as 75 % of the value of the assets held as collateral, valued in accordance with Article 75 of Directive 2009/138/EC.

Article 112a

Simplified calculation of the loss-given-default for reinsurance

Where Article 88 is complied with, insurance or reinsurance undertakings may calculate the loss-given-default on a reinsurance arrangement or insurance securitisation referred to in the first subparagraph of Article 192(2) as follows:

LGD = max[90 % · (Recoverables + 50 % · RM re) – F · Collateral; 0]

where:

• a) Recoverables denotes the best estimate of amounts recoverable from the reinsurance arrangement or insurance securitisation and the corresponding debtors;

• b) RMre denotes the risk mitigating effect on underwriting risk of the reinsurance arrangement or securitisation;

• c) Collateral denotes the risk-adjusted value of collateral in relation to the reinsurance arrangement or securitisation;

- d) F denotes a factor to take into account the economic effect of the collateral arrangement in relation to the reinsurance arrangement or securitisation in case of any credit event related to the counterparty.

Article 112b

Simplified calculation of the capital requirement for counterparty default risk on type 1 exposures

Where Article 88 is complied with and the standard deviation of the loss distribution of type 1 exposures, as determined in accordance with Article 200(4), is lower than or equal to 20 % of the total losses-given default on all type 1 exposures, insurance and reinsurance undertakings may calculate the capital requirement for counterparty default risk referred to in Article 200(1) as follows:

SCR def,1 = 5 · σ

where σ denotes the standard deviation of the loss distribution of type 1 exposures as determined in accordance with Article 200(4).

Subsection 7 Scope of the underwriting risk modules

Article 113

For the calculation of the capital requirements for non-life underwriting risk, life underwriting risk and health underwriting risk, insurance and reinsurance undertakings shall apply:

• (a) the non-life underwriting risk module to non-life insurance and reinsurance obligations other than health insurance and reinsurance obligations;

• (b) the life underwriting risk module to life insurance and reinsurance obligations other than health insurance and reinsurance obligations;

- (c) the health underwriting risk module to health insurance and reinsurance obligations.

SECTION 2 Non-life underwriting risk module

Article 114

Non-life underwriting risk module

• (a) the non-life premium and reserve risk sub-module referred to in point (a) of the third subparagraph of Article 105(2) of Directive 2009/138/EC;

• (b) the non-life catastrophe risk sub-module referred to in point (b) of the third subparagraph of Article 105(2) of Directive 2009/138/EC;

• (c) the non-life lapse risk sub-module.

Image omitted; see official source

where:

• (a) the sum covers all possible combinations (i,j) of the sub-modules set out in paragraph 1;

• (b) CorrNL(i,j) denotes the correlation parameter for non-life underwriting risk for sub-modules i and j;

• (c) SCRi and SCRj denote the capital requirements for risk sub-module i and j respectively.

| j *i | Non-life premium and reserve | Non-life catastrophe | Non-life lapse* |

| --- | --- | --- | --- | | Non-life premium and reserve | 1 | 0,25 | 0 | | Non-life catastrophe | 0,25 | 1 | 0 | | Non-life lapse | 0 | 0 | 1 |

Article 115

Non-life premium and reserve risk sub-module

The capital requirement for non-life premium and reserve risk shall be equal to the following:

Image omitted; see official source

where:

• (a) σnl denotes the standard deviation for non-life premium and reserve risk determined in accordance with Article 117;

- (b) Vnl denotes the volume measure for non-life premium and reserve risk determined in accordance with Article 116.

Article 116

Volume measure for non-life premium and reserve risk

Image omitted; see official source

where:

• (a) V(prem,s) denotes the volume measure for premium risk of segment s;

• (b) V(res,s) denotes the volume measure for reserve risk of segment s;

• (c) DIVs denotes the factor for geographical diversification of segment s.

Image omitted; see official source

where:

• (a) Ps denotes an estimate of the premiums to be earned by the insurance or reinsurance undertaking in the segment s during the following 12 months;

• (b) P(last,s) denotes the premiums earned by the insurance or reinsurance undertaking in the segment s during the last 12 months;

• (c) FP(existing,s) denotes the expected present value of premiums to be earned by the insurance or reinsurance undertaking in the segment s after the following 12 months for existing contracts;

• (d) FP(future,s) denotes the following amount with respect to contracts where the initial recognition date falls in the following 12 months:
• (i) for all such contracts whose initial term is one year or less, the expected present value of premiums to be earned by the insurance or reinsurance undertaking in the segment s, but excluding the premiums to be earned during the 12 months after the initial recognition date;
• (ii) for all such contracts whose initial term is more than one year, the amount equal to 30 % of the expected present value of premiums to be earned by the insurance or reinsurance undertaking in the segment s after the following 12 months.

Image omitted; see official source

provided that the all of following conditions are met:

• (a) the administrative, management or supervisory body of the insurance or reinsurance undertaking has decided that its earned premiums in the segment s during the following 12 months will not exceed Ps;

• (b) the insurance or reinsurance undertaking has established effective control mechanisms to ensure that the limits on earned premiums referred to in point (a) will be met;

• (c) the insurance or reinsurance undertaking has informed its supervisory authority about the decision referred to in point (a) and the reasons for it.

For the purposes of this calculation, the terms Ps, FP(existing,s) and FP(future,s) shall be denoted in accordance with points (a), (c) and (d) of paragraph 3.

• (a) premiums in relation to non-insurance events or settled insurance claims that are not accounted for in the cash-flows referred to in Article 41(3);

• (b) premiums for reinsurance contracts that do not comply with Articles 209, 210, 211 and 213.

7. For all segments set out in Annex II, the default factor for geographical diversification of a particular segment shall be either 1 or calculated in accordance with Annex III.

Article 117

Standard deviation for non-life premium and reserve risk

Image omitted; see official source

where:

• (a) Vnl denotes the volume measure for non-life premium and reserve risk;

• (b) the sum covers all possible combinations (s,t) of the segments set out in Annex II;

• (c) CorrS(s,t) denotes the correlation parameter for non-life premium and reserve risk for segment s and segment t set out in Annex IV;

• (d) σs and σt denote standard deviations for non-life premium and reserve risk of segments s and t respectively;

• (e) Vs and Vt denote volume measures for premium and reserve risk of segments s and t, referred to in Article 116, respectively.

Image omitted; see official source

where:

• (a) σ(prem,s) denotes the standard deviation for non-life premium risk of segment s determined in accordance with paragraph 3;

• (b) σ(res,s) denotes the standard deviation for non-life reserve risk of segment s as set out in paragraphs 4 and 5;

• (c) V(prem,s) denotes the volume measure for premium risk of segment s referred to in Article 116;

• (d) V(res,s) denotes the volume measure for reserve risk of segment s referred to in Article 116.

Where the non-proportional reinsurance is an adverse development cover that meets the conditions set out in the third subparagraph, the adjustment factor for non-proportional reinsurance referred to in the first subparagraph shall be equal to the following:

Adjust(NP,s) = max(0 ; Image omitted; see official source )

where:

• (a) V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover;

• (b) Image omitted; see official source

• (c) ADC(rec,s) denotes the adverse development cover recovery under the reserve risk scenario;

• (d) Par denotes the maximum of the additional reinsurance premium, or the equivalent thereof, and zero;

• (e) C denotes the cession to the reinsurer, expressed as percentage of the claim amounts between attachment and detachment points that the reinsurance covers;

• (f) Pr denotes the prudency factor, which shall be equal to 100 %.

The adverse development covers referred to in the second subparagraph shall meet the following conditions:

• (a) each adverse development cover is only applied to one specific group of policies with the same risk characteristics within the same segment, and has a separate and distinct attachment and detachment point;

• (b) the attachment point referred to in point (a) does not exceed the product of V(net,res,s) referred to in point (a) of the second subparagraph and the sum of 1 and σ(res,s, annex) referred to in point (b) of that subparagraph.

For non-proportional reinsurance other than those referred to in the second subparagraph, the adjustment factor shall be 100 %.

ADC(rec,s) = min [ Image omitted; see official source · (1 + 3 · σ(res,s,annex)) – R(ap); R(cs)]

where:

• (a) V(net,res,s) denotes the nominal best estimate of the insurance and reinsurance obligations in the segment after deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles of the adverse development cover;

• (b) σ(res,s,annex) denotes the standard deviation for non-life reserve risk of segment s as set out in Annex II;

• (c) R(ap) denotes the reinsurance structure attachment point;

- (d) R(cs) denotes the size of the adverse development cover that is available to the insurance or reinsurance undertaking.

Article 118

Non-life lapse risk sub-module

• (a) the discontinuance of 40 % of the insurance policies for which discontinuance would result in an increase of technical provisions without the risk margin;

• (b) where reinsurance contracts cover insurance or reinsurance contracts that will be written in the future, the decrease of 40 % of the number of those future insurance or reinsurance contracts used in the calculation of technical provisions.

3. For the purposes of determining the loss in basic own funds of the insurance or reinsurance undertaking under the event referred to in point (a) of paragraph 1, the undertaking shall base the calculation on the type of discontinuance which most negatively affects the basic own funds of the undertaking on a per policy basis.

Article 119

Non-life catastrophe risk sub-module

• (a) the natural catastrophe risk sub-module;

• (b) the sub-module for catastrophe risk of non-proportional property reinsurance;

• (c) the man-made catastrophe risk sub-module;

• (d) the sub-module for other non-life catastrophe risk.

Image omitted; see official source

where:

• (a) SCRnatCAT denotes the capital requirement for natural catastrophe risk;

• (b) SCRnpproperty denotes the capital requirement for the catastrophe risk of non-proportional property reinsurance;

• (c) SCRmmCAT denotes the capital requirement for man-made catastrophe risk;

- (d) SCRCATother denotes the capital requirement for other non-life catastrophe risk.

Article 120

Natural catastrophe risk sub-module

• (a) the windstorm risk sub-module;

• (b) the earthquake risk sub-module;

• (c) the flood risk sub-module;

• (d) the hail risk sub-module;

• (e) the subsidence risk sub-module.

1a. For the purposes of paragraph 1, the following definitions shall apply:

• (a) ‘windstorm’ means a meteorological peril involving storm events characterised by high-velocity winds generated by atmospheric disturbances, including extratropical cyclones and tropical cyclones; windstorm includes storm surge, where materially present, and does not include convective storms;

• (b) ‘earthquake’ means a geophysical peril characterised by a sudden movement of a block of the Earth’s crust along a geological fault and associated ground shaking; earthquake does not include tsunami or fire following the seismic event;

• (c) ‘flood’ means a hydrological peril involving the temporary inundation of normally dry land by water resulting from the overflow of inland or surface waters, including riverine or fluvial flooding, surface water or pluvial flooding caused by rainfall, or flash floods, whether resulting from fluvial, pluvial, or combined causes; flood does not include storm surge;