French Insurance Code
In forceI.-The Basic Solvency Capital Requirement is calculated as follows:
1° The "non-life underwriting risk" module reflects the risk arising from non-life insurance commitments, taking into account the perils covered and the procedures applied in the conduct of this business.
It takes account of the uncertainty weighing on the results of insurance and reinsurance undertakings in the context of their existing insurance and reinsurance commitments, as well as the new portfolio expected to be underwritten in the next twelve months.
Its calculation results from a combination of the capital requirements applicable at least to the sub-modules corresponding to the risks of loss or of adverse change in the value of insurance liabilities resulting from :
a) Fluctuations affecting the date of occurrence, frequency and severity of insured events, and the date and amount of claims settlements, i.e. premium and reserve risk in non-life;
b) Significant uncertainty, linked to extreme or exceptional events, weighing on the assumptions used in pricing and reserving, i.e. catastrophe risk in non-life.
The calculation methods and parameters to be used to calculate the "non-life underwriting risk" module are specified in Articles 114 to 135 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014;
2° The "life underwriting risk" module reflects the risk arising from life insurance commitments, taking into account the perils covered and the processes applied in the conduct of this business.
It is calculated by combining the capital requirements applicable at least to the sub-modules corresponding to the risks of loss or of adverse change in the value of insurance commitments resulting from :
a) fluctuations in the level, trend or volatility of mortality rates, where an increase in mortality rates leads to an increase in the value of insurance liabilities, i.e. mortality risk ;
b) fluctuations in the level, trend or volatility of mortality rates, where a fall in these rates leads to an increase in the value of insurance liabilities, i.e. longevity risk;
c) fluctuations in the level, trend or volatility of disability, sickness and morbidity rates, i.e. disability-morbidity risk;
d) fluctuations in the level, trend or volatility of expenses incurred in managing insurance and reinsurance contracts, i.e. the life expenses risk;
e) fluctuations in the level, trend or volatility of revision rates applicable to annuities, due to a change in the legal environment or the state of health of the insured person, i.e. the revision risk;
f) Fluctuations in the level or volatility of termination, maturity, renewal and surrender rates, i.e. termination risk;
g) Significant uncertainty related to extreme or irregular events affecting pricing and reserving assumptions, i.e. life catastrophe risk.
The calculation methods and parameters to be used to calculate the "life underwriting risk" module are specified in Articles 136 to 143 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014;
3° The "health underwriting risk" module reflects the risk arising from the underwriting of health insurance commitments, whether or not it is exercised on a technical basis similar to that of life insurance, taking into account the perils covered and the processes applied in the exercise of this activity.
It covers at least the risks of loss, or of adverse change in the value of insurance liabilities resulting from :
a) fluctuations in the level, trend or volatility of expenses incurred in managing insurance and reinsurance contracts;
b) fluctuations in the timing, frequency and severity of insured events, and in the timing and amount of claims settlements at the time of provisioning;
c) the significant uncertainty associated with major epidemics and the unusual accumulation of risks that occurs in these extreme circumstances, which weighs on the pricing and reserving assumptions used.
The calculation methods and parameters to be used for calculating the "health underwriting risk" module are specified in Articles 144 to 163 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014;
4° The "market risk" module reflects the risk associated with the level or volatility of the market value of financial instruments having an impact on the value of the assets and liabilities of the undertaking concerned. It appropriately reflects any structural mismatch between assets and liabilities, particularly in terms of duration.
It is calculated as a combination of the capital requirements applicable to at least the following sub-modules:
a) The sensitivity of the value of assets, liabilities and financial instruments to changes in the yield curve or interest rate volatility, i.e. interest rate risk. The calculation methods and parameters to be used to calculate interest rate risk are specified in Articles 165 to 167 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014;
b) The sensitivity of the value of assets, liabilities and financial instruments to changes in the level or volatility of the market value of equities, i.e. equity risk. The calculation methods and parameters to be used to calculate equity risk are specified in articles 168, 169 and 171 of the same regulation;
c) The sensitivity of the value of assets, liabilities and financial instruments to changes in the level or volatility of the market value of real estate assets, i.e. real estate risk. The methods of calculation and the parameters to be used for calculating real estate asset risk are specified in Article 174 of the same regulation;
d) The sensitivity of the value of assets, liabilities and financial instruments to changes in the level or volatility of credit spreads relative to the risk-free interest rate curve, i.e. margin risk. The calculation methods and parameters to be used to calculate margin risk are specified in articles 175 to 181 of the same regulation;
e) The sensitivity of the value of assets, liabilities and financial instruments to changes in the level or volatility of foreign exchange rates, i.e. foreign exchange risk. The methods of calculation and the parameters to be used for the calculation of foreign exchange risk are specified in Article 188 of the same regulation;
f) The additional risks borne by the insurance or reinsurance undertaking as a result either of a lack of diversification of its portfolio of assets, or of a significant exposure to the risk of default by a single issuer of securities or a group of related issuers, or concentrations of market risk. The calculation methods and parameters to be used to calculate market risk concentrations are specified in articles 182 to 187 of the same regulation.
The procedures for aggregating the various market risk sub-modules are specified in Article 164 of the same regulation;
5° The "counterparty risk" module reflects the possible losses which could result from the unexpected default, or deterioration in the credit quality, of the counterparties and debtors of the insurance or reinsurance undertaking over the next twelve months. The counterparty risk module covers risk mitigation contracts, such as reinsurance agreements, securitisations and derivatives, and payments receivable from intermediaries, as well as any other credit risk not covered by the margin risk sub-module. It takes appropriate account of guarantees or other collateral held by the company or on its behalf, and the risks associated with them.
For each counterparty, the "counterparty risk" module takes into account the overall exposure to counterparty risk incurred by the undertaking concerned with respect to that counterparty, regardless of the legal form of its contractual obligations to that undertaking.
The calculation methods and parameters to be used for the calculation of counterparty risk are specified in Articles 189 to 202 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014.
II.-Where the calculation of a module or sub-module of the Solvency Capital Requirement is based on the impact of a scenario, the detailed rules for the application of that calculation are set out in Article 83 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014.
The arrangements for using an external credit assessment to calculate a module or sub-module of the Solvency Capital Requirement are set out in Articles 3 to 6 of the same Regulation.
The procedures for taking into account investment funds and other indirect exposures are defined in Article 84 of the same regulation.
The recognition of risk mitigation techniques and the procedures for applying these techniques are defined in Articles 208 to 215 of the same regulation.
