Long-Term Equity Risk

Overview

Article 169 defines the long-term equity investments shock branch within equity risk.^[1]

Long-term equity treatment exists because the Article 105a and Article 171a framework permits a lower 22% shock only where the undertaking can demonstrate that the eligible equity subset is held against clearly identified liabilities and can be managed over a long horizon without expected forced sales.^[2][3] Article 169 then defines the capital impact as the loss in Basic Own Funds from that prescribed decrease in eligible Type 1 and Type 2 equity investments.^[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.^[4] 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.

The long-term-equity treatment is an eligibility-driven branch of the equity-risk sub-module. The Article 105a / Article 171a framework determines whether a candidate equity subset may be treated as long-term equity investments; this page assumes that eligibility has already been established.^[2][3]

In practical terms, the input exposure should be used only after the undertaking has documented that the long-term-equity subset is clearly identified, linked to a defined holding period, assigned to cover the best estimate of clearly identified liabilities, and managed separately from the rest of the undertaking. The undertaking also needs evidence that it can hold the assets long term without expected forced sales under the applicable Article 171a to 171d framework, including the methodology or forced-selling-test approach and any collective-investment wrapper conditions where relevant.^[3][5][6][7]

This page does not model any liability-side response, the eligibility assessment, 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 169 long-term-equity BOF impact only where no unit-linked or index-linked technical provision response applies; that is, where technical provisions do not fall mechanically in line with the equity movement. It also assumes that the exposure amount has already been confirmed as eligible long-term equity exposure and no separate classification, look-through, or aggregation adjustment changes that amount.

Input Terms

• Eligible Long-Term Equity Exposure: The value of equity investments already confirmed as eligible for long-term-equity treatment under Article 105a and Article 171a.^[2][3]
• Long-Term Equity Shock Factor: The prescribed Article 169 instantaneous decrease applied to eligible long-term equity investments at the regulatory 22% calibration.^[1]

Technical Rationale

The Article 169 long-term-equity branch deliberately makes eligibility evidence the controlling issue. The 22% calibration is justified only after the Article 105a and Article 171a conditions support a genuine long-term holding profile; without that evidence, the exposure belongs in the ordinary Type 1 or Type 2 equity shock path.

Important Notes

• Eligibility: This page does not calculate eligibility. Long-term equity treatment requires Article 105a and Article 171a to 171d evidence before the 22% branch is supportable.^{[2][3][5][6][7]}
• Look-Through Approach: Per Article 84 of the Delegated Regulation, investment funds should be looked through where required before identifying the eligible long-term equity exposure.^[8]
• Branch boundary: This page does not model any liability-side response. The output equals the Article 169 long-term-equity BOF impact only where no unit-linked or index-linked technical provision response applies; that is, where technical provisions do not fall mechanically in line with the equity movement. It is still not a complete equity SCR calculation by itself because it sits before full equity-risk aggregation and before Market Risk / BSCR diversification.
• Regulatory deviation: Material deviation from standard-formula assumptions at this layer may support a capital add-on or a move toward an internal model where justified.^[9]
• Reporting: The displayed result is intended to support the corresponding equity-risk component for the S.25.01.01 standard-formula reporting view.^[10]