Skip to content

Reinsurance and Securitisation Mitigation Simplification

Counterparty Risk

Calculate the Allocated Risk-Mitigating Effect for Counterparty i instantly.

€
€
€
€

Allocated Risk-Mitigating Effect for Counterparty i

€30

1Step 1

Total Risk-Mitigating Effect

Total Risk-Mitigating Effect=Hypothetical Underwriting Capital Without Arrangements−Actual Underwriting Capital\textit{Total Risk-Mitigating Effect} = \textit{Hypothetical Underwriting Capital Without Arrangements} - \textit{Actual Underwriting Capital}
2Step 2

Allocated Risk-Mitigating Effect for Counterparty i

Allocated Risk-Mitigating Effect for Counterparty i=Total Risk-Mitigating Effect×Recoverables for Counterparty iRecoverables for All Counterparties\textit{Allocated Risk-Mitigating Effect for Counterparty i} = \frac{\textit{Total Risk-Mitigating Effect} \times \textit{Recoverables for Counterparty i}}{\textit{Recoverables for All Counterparties}}

Understand the Reinsurance and Securitisation Mitigation Simplification

Overview

This calculator implements the simplified capital requirement for the Risk-Mitigating Effect of Reinsurance within the Solvency II standard formula.[1] This simplified approach is intended for undertakings where the standard-formula calculation is disproportionately complex relative to the risk. The requirement is defined as the economic capital necessary to provide a 1-in-200 year level of protection using proxy variables for reinsurance-driven risk reduction.[2]

Input Terms

  • Reinsurance Recoverables (BE_re): The value of technical provisions calculated as recoverables from reinsurance contracts.[1]
  • Undiversified SCR: The raw, undiversified Solvency Capital Requirement for the underwriting risk being mitigated.

Technical Rationale

The Counterparty Reinsurance Mitigation Simplification is calibrated to a 99.5% confidence level over a one-year horizon. It captures the sensitivity of the undertaking’s basic own funds to a default by its reinsurers. Unlike a full article-by-article revaluation, which requires a complete revaluation of the SCR under multiple default scenarios, this simplification uses a closed-form proxy where the risk-mitigating effect is a function of the technical provisions and the gross underwriting risk.

This method is governed by the principle of proportionality (Article 109), ensuring that smaller undertakings can calculate their solvency capital requirements without the operational burden of a full-scale mitigation-valuation engine. The result represents the simplified mitigation contribution to the total Counterparty Default Risk.

Important Notes

  • Regulatory deviation: Material deviation from the standard-formula assumptions or from the conditions supporting this simplification may support a capital add-on or a move toward a fuller or internal-model approach where justified.[3]
  • Reporting: The simplified result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view, not to replace the connected article-chain result where the simplification is not justified.[4]

Sources

  1. Delegated Regulation (EU) 2015/35 - Art. 108 (Simplification) - EUR-Lex
  2. Directive 2009/138/EC - Art. 101 (99.5% VaR / 1-in-200 calibration) - EIOPA
  3. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  4. Commission Implementing Regulation (EU) 2015/2450 - QRT S.25.01 - EUR-Lex

Default values are illustrative sample inputs for navigation, training, and QA. Replace them with controlled data before using the result in capital analysis, governance, or reporting decisions.