The EIOPA confirms the response to Q-A 1368. Please note that the definition of CATEGORY 24 of the CIC (money market instruments) has been amended with the change in the technical standard of performance for reporting (2018) and does not explicitly contain “buy-back contracts (rest)”. We read AEAPP`s response to the question #1368 in which you stated that 1) a pension contract should be declared in two lines with CIC corresponding to the lended asset and $7 for the current value received and 2) a reverse-repo with CIC XT85 (collateralized loan). This is a bit confusing, because the definition of category 24 of the money market explicitly contains “buy-back contracts.” I would like clarification on the appropriate treatment of self-repurchase contracts under the standard Solvency II formula, the SCR. I do not believe that such transactions are explicitly covered by the Level 1 directive or in the Level 2 delegated acts, but that they are only mentioned in the Level 3 guidelines. The guideline 8, paragraph 1.24, of the document “Guidelines for the treatment of market and counterparty exposures in the standard formula” is important, since it says: “1.24. When adopting capital requirements for securities lending or credit transactions, as well as for pension or pension transactions, including liquidity swaps, companies should comply with the registration of items traded in the Solvency II balance sheet. They should also consider the contractual terms and risks arising from the transaction or agreement. The following example, point 1.27, makes it very clear that, in the case of a periodic pension purchase contract in which the company lends cash and borrows a loan, with both assets included in the balance sheet, the capital position derives from the combination of the spread risk of the bond and the counterparty risk associated with the return of that bond, which is reduced by the obligation to repay the loan in cash. The borrowed asset, which is cash, has no risk. “1.27. When borrowed assets and assets received are recorded in Solvency II`s balance sheet, entities should: (a) apply relevant market risk sub-modules to borrowed and borrowed assets; (b) to include loan-related assets in the calculation of the counterparty credit risk capital requirement for Type 1 exposures, taking into account the risk reduction provided by the asset received when it is recorded as collateral in accordance with the requirements of Section 214 of the Commission`s 2015/35 Delegate Regulation; (c) for calculating the capital requirement for the interest rate risk submodal, take into account liabilities resulting from the loan agreement.
I believe that reverse deposits in which the borrowed asset is cash, which is de-recognized on the balance sheet and that the asset received is an obligation not recorded in the balance sheet, should be treated in a similar manner.