Property Risk

Overview

Article 174 defines the property-risk shock for immovable-property exposure.^[1]

Property risk is isolated because immovable-property values can move differently from equity, spread, and concentration exposures. Article 174 defines the Property Risk capital requirement as the loss in Basic Own Funds resulting from a prescribed 25% instantaneous decrease in immovable-property exposure. Under Article 87, Basic Own Funds are defined as the excess of assets over liabilities both valued on a market-consistent basis, where qualifying subordinated liabilities are excluded from the liability figure. A full undertaking-specific BOF impact may therefore require recalculating technical provisions under Article 83.

Article 83 mandates that the following assumptions apply in any standard formula scenario-based module or sub-module calculation: * The risk margin does not change. * Deferred tax assets and liabilities do not change. * Future discretionary benefits do not change. * Management actions during the scenario are not reflected.

This page does not model any liability-side response. The output equals the full Article 174 BOF impact only where no unit-linked or index-linked technical provision response applies; that is, where technical provisions do not fall mechanically in line with the asset movement.

Input Terms

• Total Property Exposure: The aggregate market value of all assets sensitive to real estate price fluctuations. This includes directly owned land and buildings (commercial, residential, and own-use), and indirect exposures via collective investment undertakings (like real estate funds).^[1]

Technical Rationale

The Property Risk shock is calibrated to the standard-formula 99.5% confidence level over a one-year horizon. The instantaneous 25% decrease isolates real-estate price risk while leaving any undertaking-specific liability response to the wider Basic Own Funds valuation process.

Important Notes

• Look-Through Approach: Per Article 84 of the Delegated Regulation, insurers must "look through" investment funds to the underlying real estate assets to ensure all property exposure is captured.^[2]
• Gross vs. Net SCR: This page does not model any liability-side response. The output equals the full Article 174 BOF impact only where no unit-linked or index-linked technical provision response applies; that is, where technical provisions do not fall mechanically in line with the asset movement.
• 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.^[3]
• Reporting: The displayed result is intended to support the corresponding standard-formula component for the S.25.01.01 standard-formula reporting view.^[4]