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Solvency II Capital Requirements for Debt Instruments


Impact of Solvency II on the Debt Markets.

This document is not intended to be an exhaustive review of the impact of Solvency II on the debt markets or the calculation of the Solvency Capital Requirement (SCR) under the standard formula. However, it is intended to provide a detailed description of the key elements in the calculation of the SCR for debt instruments. The variety of asset classes and risk types that constitute debt instruments offer a wide range of complex situations to be dealt with: various types of coupons, indexations and embedded options (callable, puttable…), convertible bonds, collateralized loans, securitizations, infrastructure debt…

(...) The first section of this document provides the big picture of the SCR standard formula. We then focus on the specificities of the SCR for debt instruments, with particular attention to the use of ratings and pricing models. A third section is dedicated to how profitability can be measured, taking into account the SCR.

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