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Annex II - Practicability issues, Inconsistencies, Gaps &

Ambiguities in Draft QIS5 Technical Specifications

CEA reference: ECO-SLV-10-372 Date: 20 May 2010

Referring to: Solvency II

Related CEA documents:

Contact person: ECOFIN Department E-mail: ecofin@cea.eu

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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Valuation (Section 1)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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ρ

ρ

SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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σ

SCR Standard Formula (Section 2)

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σ

σ

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SCR Standard Formula (Section 2)

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σ

SCR Standard Formula (Section 2)

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SCR Standard Formula (Section 2)

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σ

SCR Standard Formula (Section 2)

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MCR (Section 4)

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Own Funds (Section 5)

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Own Funds (Section 5)

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Own Funds (Section 5)

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Own Funds (Section 5)

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Own Funds (Section 5)

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Groups (Section 6)

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Groups (Section 6)

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Other

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Annex

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Calculations showing inconsistency between spread risk module calculations for corporate bonds and structured credit products. 1. Comparison Corporate Bonds held directly vs held via structured finance transaction

Rating AmountModified

Duration (years)

AAA - 10

AA - 10

A - 10

BBB - 10

BB 10 000 000.00 10

B 10 000 000.00 10

CCC - 10

Total 20 000 000.00

Insurance A

Attachment 0.00%

Detachment 100.00%

Capital Charge

40.50%

48.58%

Difference 8.08%

in EUR 1 616 500.00

a) Capital Charge if this portfolio is held directly

F(Rating) Rating class Duration Floor Duration Cap

AAA 1.30% 1

AA 1.50% 1

A 1.80% 1

BBB 2.50% 1

BB 4.50% 1 8

B 7.50% 1 6

CCC 7.50% 1 6

Unrated 3.00% 1

Rating Amount Tenure (years) Charge % Charge

AAA - 10 -

AA - 10 -

A - 10 -

BBB - 10 -

BB 10 000 000.00 10 3 600 000.00 36.00%

B 10 000 000.00 10 4 500 000.00 45.00%

CCC - 10 -

Total 20 000 000.00 8 100 000.00 40.50%

b) Capital Charge if this portfolio is held via a structured credit transaction WITH SAME ECONOMIC RISK

G(Rating…) AAA AA A BBB BB B CCC Unrated

0 0.80% 1.60% 4.70% 8.10% 20.90% 41.50% 65.90% 9.70%

2 1.60% 3.10% 8.10% 14.70% 34.10% 59.70% 83.30% 17.60%

4 2.30% 5.00% 10.90% 20.20% 43.00% 68.20% 88.40% 24.20%

6 3.50% 7.40% 14.00% 25.20% 50.40% 73.30% 90.70% 30.20%

8 4.70% 9.70% 17.10% 30.20% 56.20% 77.10% 91.90% 36.20%

R(ratingdist) AAA AA A BBB BB B CCC Unrated

Recovery Rate 50% 45% 40% 35% 30% 25% 20% 35%

Rating Amount Tenure (years) Default Recovery Default Rate Loss Rate

AAA - 10 - - 4.70%

AA - 10 - - 9.70%

A - 10 - - 17.10%

BBB - 10 - - 30.20%

BB 10 000 000.00 10 5 620 000.00 1 686 000.00 56.20% 39.34%

B 10 000 000.00 10 7 710 000.00 1 927 500.00 77.10% 57.83%

CCC - 10 - - 91.90%

Total 20 000 000.00 13 330 000.00 3 613 500.00 66.65% 48.58%

Formula:

Capital Charge 48.58%

Portfolio

SCR 4.137

SCR 4.138

SCR 4.139

a) Portfolio is held directly

b) Portfolio is held via structured credit

transaction with SAME ECONOMIC RISK

Results

i

i

struct

spAttachmentDetachment

AttachmentratingdistRratingGMVMkt

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