Interest Rate Risk Captive Simplification | Actuably

Asset Up Leg

€6 217 200

Liability Up Leg

€2 186 550

Asset Down Leg

€3 225 600

Liability Down Leg

€1 068 750

Asset Bucket	Market Value	Rate	Duration	Up Shock	Down Shock	Up Leg	Down Leg
Up to 1 Year	Up to 1 Year market value€	Up to 1 Year risk-free rate%	0.5	70%	50%	€0	€0
1 to 3 Years	1 to 3 Years market value€	1 to 3 Years risk-free rate%	2	65%	45%	€0	€0
3 to 5 Years	3 to 5 Years market value€	3 to 5 Years risk-free rate%	4	55%	35%	€0	€0
5 to 10 Years	5 to 10 Years market value€	5 to 10 Years risk-free rate%	7	45%	25%	€0	€0
10 Years and Over	10 Years and Over market value€	10 Years and Over risk-free rate%	12	35%	15%	€0	€0

Liability Block	Best Estimate	Duration	Rate	Up Shock	Down Shock	Up Leg	Down Leg
Liability Block 1	Liability Block 1 best estimate€	Liability Block 1 duration	Liability Block 1 risk-free rate%	35%	15%	€0	€0
Liability Block 2	Liability Block 2 best estimate€	Liability Block 2 duration	Liability Block 2 risk-free rate%	45%	25%	€0	€0
Liability Block 3	Liability Block 3 best estimate€	Liability Block 3 duration	Liability Block 3 risk-free rate%	55%	35%	€0	€0

Interest Rate Up

€4 030 650

=

Asset Up Leg

€6 217 200

−

Liability Up Leg

€2 186 550

Interest Rate Down

€2 156 850

=

Asset Down Leg

€3 225 600

−

Liability Down Leg

€1 068 750

Interest Rate Risk Capital

€4 030 650

=

Interest Rate Up

€4 030 650

>

Interest Rate Down

€2 156 850

>

Zero Floor

€0

1Step 1

Calculate asset up/down legs from Article 103 duration buckets

Leg_{asset} = MV \times Duration_{bucket} \times Rate \times Shock

2Step 2

Calculate liability up/down legs from best estimate, duration, rate, and embedded shocks

Leg_{liability} = BE \times Duration \times Rate \times Shock

3Step 3

Net asset and liability legs separately for upward and downward stresses

IR_{up/down} = Leg_{asset,up/down} - Leg_{liability,up/down}

4Step 4

Take the positive maximum of the upward and downward stress results

SCR_{IR} = \max(0,\;IR_{up},\;IR_{down})

Understand the Interest Rate Risk Captive Simplification

Overview

This calculator implements the simplified capital requirement for Interest Rate Risk for captive insurance undertakings within the Solvency II standard formula.^[1] This simplified approach is intended for captive 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 duration-based proxy factors. ^[2]

Input Terms

Interest-Rate-Sensitive Assets (IR_assets): The total market value of assets exposed to interest-rate fluctuations.^[1]
Interest-Rate-Sensitive Liabilities (IR_liabilities): The total technical provisions exposed to interest-rate risk.
Duration Proxy (dur_i): The regulatory duration proxy used to determine the sensitivity of the asset/liability values to a 1% interest-rate shock.

Technical Rationale

The Interest Rate Risk Captive 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 an adverse change in the level or volatility of risk-free interest rates. Unlike a full article-by-article revaluation, which requires a complete revaluation of the balance sheet under up/down shocks, this simplification uses a direct duration-based proxy for captive insurers.^[1]

This method is governed by the principle of proportionality (Article 109), ensuring that captive undertakings can calculate their solvency capital requirements without the operational burden of a full-scale valuation calculator. The result represents the simplified interest-rate risk component before diversification in Market Risk.

Important Notes

Duration Calibration: The 1-in-200 year severity is embedded in the duration-based proxy factor, which assumes an instantaneous shock to the entire interest-rate term structure.
Look-Through Approach: Per Article 84 of the Delegated Regulation, insurers must "look through" investment funds to the underlying rate-sensitive assets so the simplified bucketed positions capture the real duration exposure.^[3]
Gross vs. Net SCR: This simplification estimates the standalone Interest Rate Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in Market Risk, then within BSCR, and after the top-level LAC TP and LAC DT adjustments.
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.^[4]
Reporting: The simplified result is intended to support the corresponding standard-formula component feeding the S.25.01.01 standard-formula reporting view, not to replace the connected article-chain result where the simplification is not justified.^[5]

Sources