A scenario driven approach to SCR allows the material scenarios to include

A scenario driven approach to scr allows the material

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A scenario driven approach to SCR allows the material scenarios to include adverse currency movements applied to the assets and stress amounts arising according to their underlying currency. the solo currency SCR might be overestimated because : - it is assessed without considering any diversification effect between the different currencies - The calibration of the currency risk realised by CEIOPS for the standard formula derives from a calculation of Value-At-Risk (VaR) for each currency of the market global currency exposure benchmark. The currency standard formula stress coefficient results from the weighted average of these VaR instead of a unique VaR calculated from a composite index representing the market currency benchmark. We have not identified how to improve on the existing standard formula. Q16.1 Q16.2 Q16.3 Template comments 45/66
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Comments Template on Discussion Paper on the review of specific items in the Solvency II Delegated Regulation Deadline 3 March 2017 23:59 CET Q16.4 Q16.5 Q16.6 Q16.7 Q16.8 Q16.9 Q17.1 Yes we do. Especially it needs to be taken into account that: The goal of measuring the one-year 99.5% VaR in the low yield environment with even negative interest rates can obviously not be achieved by the relative downward shock prescribed in the Delegated Regulation. Basis for the definition of the shock parameters have been time series for Euro and GBP until 2009. Very low interest rates and even negative interest rates are unprecedented and had not occurred at that time. This relative approach becomes meaningless in an environment, where very low and even negative interest- rates are prevailing: o Risk of interest-rates becoming negative not adequately captured. E.g. for still positive but very low interest-rates the risk of interest rates becoming negative is not captured. o The basic risk-free interest rate being negative shall not decrease further (Article 167(2) of Delegated regulation). As depicted in the discussion paper (p. 62) a recalibration by considering the development of these currencies in the years 2009 – 2016 would lead to erratic behaviour of the upward shock. A different approach is needed. Approaches discussed in the following are o Extension of the time series (backtesting with longer history) o Introducing an additive component (minimum shock also for the interest rate down risk) o Keeping the relative shock approach determined by using shifted curves Q17.2 We find defining a minimum downward shock problematic as there is several aspects that needs to be taken into account. Also because of the many different aspects we encourage EIOPA to further investigate the matter quite carefully. Regarding the minimum shock we find that: Template comments 46/66
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Comments Template on Discussion Paper on the review of specific items in the Solvency II Delegated Regulation Deadline 3 March 2017 23:59 CET There is no reliable estimation of a lower bound available.
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