Market Concentration Risk | Actuably

Total Assets

€

#	Counterparty Name	Exposure Amount	Credit Rating
1	Counterparty Name row 1	Exposure Amount row 1€	Credit Rating row 1
2	Counterparty Name row 2	Exposure Amount row 2€	Credit Rating row 2
3	Counterparty Name row 3	Exposure Amount row 3€	Credit Rating row 3

Simple Sum

€6 142 500

Before diversification

−

Diversification Benefit

€1 667 664

−27.1% of standalone

Capital relief

=

SCR Conc

€4 474 836

After diversification

Simple Sum Attribution

Name	Share	Amount
Beacon Telecom	62.4%	€3.8M
Acme Holdings	37.6%	€2.3M

Single-Name Threshold Breach and Capital Build

NameSingle NameExp.ExposureCQSThr.ThresholdXS_ig_iConc_i

Beacon Telecom

Breached

1 rowBB

€9.0M€9 000 000

CQS 4

€3.8M€3 750 000

€5.3M€5 250 000

73%

€3.8M€3 832 500

Acme Holdings

Breached

2 rowsAAA / AA + BBB

€19M€18 500 000

CQS 2

€7.5M€7 500 000

€11M€11 000 000

21%

€2.3M€2 310 000

Concentration Threshold Lookup

CQSRating BucketCT_ig_i

CQS 0

Outside simplified dropdown

3%

12%

CQS 1

AAA / AA

3%

12%

CQS 2

A

Current

3%

21%

CQS 3

BBB

1.5%

27%

CQS 4

BB

Current

1.5%

73%

CQS 5

B / Unrated

1.5%

73%

CQS 6

CCC or lower

1.5%

73%

1Step 1

Group exposures by single-name counterparty

E_i = \sum_{j=1}^{n_i} \mathrm{Exposure}_{ij}

2Step 2

Calculate the weighted average credit quality step

\overline{\mathrm{CQS}}_i = \frac{\sum_{j=1}^{n_i} \mathrm{Exposure}_{ij} \times \mathrm{CQS}_{ij}}{E_i}

3Step 3

Round the weighted average credit quality step up

\mathrm{CQS}_i = \left\lceil \overline{\mathrm{CQS}}_i \right\rceil

4Step 4

Convert the concentration threshold into a currency amount

\mathrm{Threshold}_i = \mathrm{Assets} \times CT_i

5Step 5

Calculate excess exposure above the threshold

XS_i = \max\left(0,\ E_i - \mathrm{Threshold}_i\right)

6Step 6

Apply the risk weight to the excess exposure

\mathrm{Conc}_i = XS_i \times g_i

7Step 7

Add the single-name charges without diversification

\mathrm{Simple\ Sum} = \sum_{i=1}^{m} \mathrm{Conc}_i

8Step 8

Aggregate the single-name charges with square-root diversification

\mathrm{SCR}_{\mathrm{conc}} = \sqrt{\sum_{i=1}^{m} \mathrm{Conc}_i^2}

Understand the Market Concentration Risk

Overview

This calculator implements the gross capital requirement for the Market Risk Concentration sub-module within the Solvency II standard formula.^[1] The Concentration 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 affecting excessive exposure to single-name counterparties or groups.^[2]

Input Terms

Total Assets: The concentration-module asset base used as the denominator for threshold calculations, representing the total assets in scope for market-risk modules.^[3]
Counterparty Name: The legal entity or group name used as the primary key for single-name exposure aggregation.^[1]
Exposure Amount: The carrying value of each individual asset or liability exposure before grouping.^[3]
Credit Quality Step (CQS): The regulatory rating classification for each counterparty, used to select the applicable threshold and concentration risk factor.^[1]

Technical Rationale

The Market Risk Concentration sub-module is calibrated to a 99.5% confidence level over a one-year horizon. The calculation follows a multi-step process to determine the capital needed to absorb potential losses stemming from excessive exposure to a single counterparty or group.^[1]

First, all individual exposures are aggregated by single-name entity. For each grouped counterparty, the engine calculates the excess exposure above the regulatory threshold (typically 3% or 1.5% of total assets depending on the credit quality step).^[4] This excess is then multiplied by a concentration risk factor (`g_i`) defined in Article 186. The total capital requirement is the direct sum of these individual name charges, with no diversification applied between counterparties.^[5]

Important Notes

Single-Name Hygiene: Proper identification and grouping of counterparties under a single parent name is critical for regulatory accuracy. Incomplete grouping will understate the total concentration and leads to a material miscalculation of the capital requirement.
Weighted-Average CQS: Under Article 182(4), when a counterparty has multiple exposures with different ratings, the engine calculates a weighted-average CQS and rounds up to determine the applicable threshold and charge factor.^[1]
Look-Through Approach: Per Article 84 of the Delegated Regulation, insurers must "look through" investment funds to the underlying issuers so single-name exposure is measured on the real issuer basis rather than at the fund-wrapper level.^[6]
Gross vs. Net SCR: This calculator determines the standalone Market Concentration 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 LACDT adjustments.
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.^[7]
Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view.^[8]

Sources