Non-Life Geographical Diversification Factor

Overview

This calculator implements the Non-Life Geographical Diversification Factor (GDF) within the Solvency II standard formula.^[1] The GDF is defined as a technical adjustment to the non-life volume measure, intended to reflect the risk-mitigating effect of geographic spread across multiple regions or countries.

Input Terms

• Region-Specific Volume Measures: The earned-premiums and technical-provisions for the undertaking's non-life obligations, segmented by geographic region.^[1]
• GDF Adjustment: The final reduction factor applied to the unadjusted volume measure.

Technical Rationale

The Geographical Diversification Factor is a technical driver intended to credit the undertaking for the diversification of its non-life portfolio across independent geographic markets. It ensures that the capital requirement is not over-calibrated for undertakings with a broad international or regional presence.

The calculation uses a Herfindahl-style index of the undertaking's volume measure across the prescribed geographic regions. This ensures that the undertaking holds enough capital to absorb systemic fluctuations in its base market while recognizing the reduced volatility of a geographically distributed pool of risks.^[1] The results feed the Non-Life Premium & Reserve Risk and Non-Life Underwriting Risk modules.

Important Notes

• Regional Definitions: The geographic regions are strictly defined in Delegated Regulation (EU) 2015/35 (e.g., EEA, North America, Asia).
• Regulatory deviation: Material deviation from standard-formula assumptions at this layer may support a capital add-on or a move toward an internal model where justified.^[2]
• Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01.01 standard-formula reporting view.^[3]