Duration-Based Equity Risk

Overview

Article 170 defines the duration-based equity risk branch for equity exposure covered by Article 304 supervisory approval.^[1]

The branch exists because Article 304 permits a different equity treatment only for tightly scoped long-term insurance business with supervisory approval. Article 170 therefore fixes the shock at 22% for the relevant equity exposure corresponding to that approved business, instead of treating it as ordinary Type 1 or Type 2 equity exposure.^[1] Under Article 87, Basic Own Funds are defined as the excess of assets over liabilities both valued on a market-consistent basis, where qualifying subordinated liabilities are excluded from the liability figure. A full undertaking-specific BOF impact may therefore require recalculating technical provisions under Article 83.

Article 83 mandates that the following assumptions apply in any standard formula scenario-based module or sub-module calculation: * The risk margin does not change. * Deferred tax assets and liabilities do not change. * Future discretionary benefits do not change. * Management actions during the scenario are not reflected.

This page does not model any liability-side response, supervisory approval, Article 304 eligibility, Type 1 / Type 2 classification, Article 84 look-through, the Article 172 symmetric adjustment, or the broader equity-risk aggregation. The output equals the Article 170 duration-based equity BOF impact only where the entered exposure has already been confirmed as duration-based equity exposure and no unit-linked or index-linked technical provision response applies.

Input Terms

• Duration-Based Equity Exposure: The value of equity exposure already confirmed as eligible for the duration-based equity risk treatment under the undertaking's supervisory approval and governance evidence.^[1]
• Duration-Based Equity Shock Factor: The prescribed Article 170 instantaneous decrease applied to the eligible duration-based equity exposure at the regulatory 22% calibration.^[1]

Technical Rationale

The Article 170 branch deliberately separates supervisory eligibility from shock calibration. Once approval and exposure identification are evidenced, the legal calibration is fixed at 22% because the duration-based treatment is meant to reflect a constrained asset-liability profile rather than the ordinary traded-equity volatility captured by the standard Type 1 and Type 2 shocks.

Important Notes

• Approval not modelled here: This page does not determine whether the undertaking may use the duration-based equity risk sub-module. Duration-based equity treatment requires supervisory approval and Article 304 evidence before the 22% branch is supportable.
• No symmetric adjustment: The 22% duration-based equity shock does not add the Article 172 symmetric adjustment.
• Look-Through Approach: Per Article 84 of the Delegated Regulation, investment funds should be looked through where required before identifying the eligible duration-based equity exposure.^[2]
• Branch boundary: This page does not model any liability-side response and is not a complete equity SCR calculation by itself because it sits before full equity-risk aggregation and before Market Risk / BSCR diversification.
• Reporting: The displayed result is intended to support the corresponding equity-risk component for the S.25.01.01 standard-formula reporting view.^[3]