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Counterparty Risk

Calculate the Solvency Capital Requirement for Counterparty Risk instantly.

€
€

Sum of Type 1 and Type 2 SCRs

€8 400 000

Before correlation diversification

−

Correlation Adjustment

€440 101

−5.2% of standalone

Capital relief

=

Counterparty Risk SCR

€7 959 899

After diversification

Counterparty Risk

Waterfall chart showing module contributions, diversification, operational risk, LAC DT adjustment, and total SCR.
StepDeltaRunning
Type 1 Default Risk60000006000000
Type 2 Default Risk24000008400000
Sum of Type 1 and Type 2 SCRs84000008400000
Correlation Adjustment-440100.50314704057959899.4968529595
Counterparty Risk SCR7959899.49685295957959899.4968529595
Counterparty exposure mix
Counterparty exposure mixShare of each segment in the total.Type 1 Default71.4% · €6.0MType 2 Default28.6% · €2.4M
ModuleShareAmount
Type 1 Default Risk71.4%€6.0M
Type 2 Default Risk28.6%€2.4M

Counterparty aggregation matrix (equivalent)

1.000.75
Counterparty aggregation matrix (equivalent)
T1Type 1T2Type 2
T1Type 1
1.00
0.75
T2Type 2
0.75
1.00
1Step 1

Correlation Formula

SCRcounterparty=SCRtype12+SCRtype22+1.5×SCRtype1×SCRtype2SCR_{counterparty}=\sqrt{SCR_{type1}^{2}+SCR_{type2}^{2}+1.5\times SCR_{type1}\times SCR_{type2}}
2Step 2

Counterparty Risk SCR

Counterparty Risk SCR=SCRdef,12+1.5×SCRdef,1×SCRdef,2+SCRdef,22\textit{Counterparty Risk SCR} = \sqrt{SCR_{def,1}^2 + 1.5 \times SCR_{def,1} \times SCR_{def,2} + SCR_{def,2}^2}
3Step 3

Correlation Adjustment

Correlation Adjustment=max⁡(0,Type 1 Default Risk+Type 2 Default Risk−Counterparty Risk SCR)\textit{Correlation Adjustment} = \max(0, \textit{Type 1 Default Risk} + \textit{Type 2 Default Risk} - \textit{Counterparty Risk SCR})

Understand the Counterparty Risk

Overview

This calculator implements the diversified capital requirement for the Counterparty Default Risk module within the Solvency II standard formula.[1] The Counterparty Risk requirement is defined as the economic capital necessary to cover the loss in basic own funds resulting from a 1-in-200 year stress event across all counterparty exposures.[2]

Input Terms

  • Type 1 Default Risk: The capital requirement for rated and concentrated financial exposures, including reinsurers, derivative counterparties, and cash at bank.[3]
  • Type 2 Default Risk: The capital requirement for unrated and diversified receivables-style exposures, such as intermediary receivables or policyholder debts.[4]

Technical Rationale

The Counterparty Default Risk module is calibrated to a 99.5% confidence level over a one-year horizon. The calculation accounts for the correlation adjustment between the two distinct exposure types defined in the standard formula.[1]

Type 1 exposures are modeled through a probability-weighted loss distribution (Vasicek-style approach) that considers the credit quality (PD), loss-given-default (LGD), and concentration of the counterparties.[5] Conversely, Type 2 exposures receive a simpler, factor-based capital charge depending on their age and nature. The final module result is the diversified sum of these two components, which is then carried into the top-level BSCR aggregation.

Important Notes

  • Group Concentration: Where multiple Type 1 exposures belong to the same group, the standard formula treats them as a single concentration risk, which can significantly increase the capital requirement compared to independent names.[5]
  • Collateral Recognition: Eligible collateral and guarantees can reduce the Loss-Given-Default (LGD), provided they meet the regulatory criteria for risk mitigation techniques.[6]
  • Default vs. Spread Risk: This module specifically captures non-payment (default) risk. Market-value fluctuations due to credit-spread sensitivity are separately captured in the Spread Risk sub-module of Market Risk.[7]
  • 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.[8]
  • Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01.01 standard-formula reporting view.[9]

Sources

  1. Delegated Regulation (EU) 2015/35 - Art. 189 (Counterparty default risk module: scope) - EIOPA
  2. Directive 2009/138/EC - Art. 101 (99.5% VaR / 1-in-200 calibration) - EIOPA
  3. Delegated Regulation (EU) 2015/35 - Art. 200 (Type 1 exposures) - EIOPA
  4. Delegated Regulation (EU) 2015/35 - Art. 202 (Type 2 exposures) - EIOPA
  5. Delegated Regulation (EU) 2015/35 - Art. 201 (Variance of the loss distribution of type 1 exposures) - EIOPA
  6. Delegated Regulation (EU) 2015/35 - Art. 209 (Qualitative criteria for risk mitigation techniques) - EIOPA
  7. Delegated Regulation (EU) 2015/35 - Art. 175 (Scope of the spread risk sub-module) - EIOPA
  8. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  9. Commission Implementing Regulation (EU) 2023/894 - QRT S.25.01.01 (SCR standard formula) - EUR-Lex

Default values are illustrative sample inputs for navigation, training, and QA. Replace them with controlled data before using the result in capital analysis, governance, or reporting decisions.