Long-Term Equity Eligibility

Overview

This calculator implements the reviewed-framework eligibility control for the reduced long-term equity shock within the Solvency II market-risk standard formula.^[1][2] It determines whether a candidate equity subset qualifies for long-term-equity treatment and publishes the eligible Type 1 and Type 2 exposure split that should feed the downstream Equity Risk calculator.^{[1][2][3][4][5]}

Input Terms

• Candidate Long-Term Equity Exposure: The total equity subset the undertaking proposes to classify under the reviewed-framework long-term-equity regime.
• Directive Article 105a Structural Flags: Governance confirmations covering identification of the subset, holding-period definition, assignment against best estimate liabilities, separate management, and asset-liability consistency.
• Article 171b Methodology Inputs: Liability-cover and liquidity inputs supporting the methodology route where the undertaking evidences that the assets can be held on a long-term basis.
• Article 171c Forced-Selling Inputs: SCR-coverage, capital-plan, and projected cashflow inputs used to show that the undertaking is not expected to sell the assets in stress.
• Article 171d Fund Wrapper Inputs: Checks for collective-investment undertakings so the reduced treatment is not extended to packaged exposures unless the lower-risk-profile conditions are met.

Technical Rationale

The calculator turns the reviewed-framework legal tests into a publishable control result. First, it verifies that the candidate Type 1 and Type 2 split reconciles to the stated candidate total and that the structural Article 105a conditions are all met.^[1] It then evaluates the selected reviewed-framework path:

• the Article 171b methodology route, which tests liability coverage and liquidity support for life or non-life business; or
• the Article 171c forced-selling route, which tests capital-planning resilience and projected cashflow sufficiency through stress.[[ref: delegated-2015-35-art-171b]]^[4]

Finally, the calculator applies the Article 171d collective-investment wrapper gate and, when all relevant conditions pass, outputs the eligible long-term Type 1 and Type 2 exposure split together with the reduced `22%` long-term-equity shock basis for downstream equity SCR use.^[5]

Important Notes

• Eligibility control, not full exposure sourcing: This calculator assumes the candidate subset has already been identified from the undertaking's holdings. It does not replace a full look-through and exposure-normalization calculator.
• Downstream dependency: The eligible Type 1 and Type 2 outputs are intended to connect into the public Equity Risk calculator so the reduced shock is evidenced rather than manually assumed.
• Governance evidence still matters: Passing the calculator does not replace the need for documented investment policy, liability linkage, capital-planning evidence, and supervisory traceability supporting the selected route.
• Reporting: The result is designed as a defensible reviewed-framework control feeding the market-risk and solvency-reporting chain, rather than as a standalone final SCR result.^[6]