Interest Rate Risk Captive Simplification

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Interest Rate Risk Capital

€4 030 650

Up to 1 Year Simplified Duration

0.50

1 to 3 Years Simplified Duration

2.00

3 to 5 Years Simplified Duration

4.00

5 to 10 Years Simplified Duration

7.00

10 Years and Over Simplified Duration

12.00

Up to 1 Year Upward Stress

70.0%

Up to 1 Year Downward Stress

50.0%

1 to 3 Years Upward Stress

65.0%

1 to 3 Years Downward Stress

45.0%

3 to 5 Years Upward Stress

55.0%

3 to 5 Years Downward Stress

35.0%

5 to 10 Years Upward Stress

45.0%

5 to 10 Years Downward Stress

25.0%

10 Years and Over Upward Stress

35.0%

10 Years and Over Downward Stress

15.0%

Liability Block 1 Upward Stress

35.0%

Liability Block 1 Downward Stress

15.0%

Liability Block 2 Upward Stress

45.0%

Liability Block 2 Downward Stress

25.0%

Liability Block 3 Upward Stress

55.0%

Liability Block 3 Downward Stress

35.0%

1Step 1

Up to 1 Year Simplified Duration

\textit{Up to 1 Year Simplified Duration} = 0.5

2Step 2

Up to 1 Year Upward Stress

\textit{Up to 1 Year Upward Stress} = 70

3Step 3

Up to 1 Year Downward Stress

\textit{Up to 1 Year Downward Stress} = 50

4Step 4

article_103_asset_bucket_1_up_leg

\textit{article\_103\_asset\_bucket\_1\_up\_leg} = \textit{Up to 1 Year Assets Less Non-TP Liabilities} \times \textit{Up to 1 Year Simplified Duration} \times \textit{Up to 1 Year Risk-Free Rate} \times \textit{Up to 1 Year Upward Stress}

\textit{article\_103\_asset\_bucket\_1\_up\_leg} = \textit{Up to 1 Year Assets Less Non-TP Liabilities} \times \textit{Up to 1 Year Simplified Duration} \times \textit{Up to 1 Year Risk-Free Rate} \times \textit{Up to 1 Year Upward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_1\_up\_leg} &= \textit{Up to 1 Year Assets Less Non-TP Liabilities} \times \textit{Up to 1 Year Simplified Duration} \times \textit{Up to 1 Year Risk-Free Rate} \times \textit{Up to 1 Year Upward Stress}\end{aligned}

5Step 5

article_103_asset_bucket_1_down_leg

\textit{article\_103\_asset\_bucket\_1\_down\_leg} = \textit{Up to 1 Year Assets Less Non-TP Liabilities} \times \textit{Up to 1 Year Simplified Duration} \times \textit{Up to 1 Year Risk-Free Rate} \times \textit{Up to 1 Year Downward Stress}

\textit{article\_103\_asset\_bucket\_1\_down\_leg} = \textit{Up to 1 Year Assets Less Non-TP Liabilities} \times \textit{Up to 1 Year Simplified Duration} \times \textit{Up to 1 Year Risk-Free Rate} \times \textit{Up to 1 Year Downward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_1\_down\_leg} &= \textit{Up to 1 Year Assets Less Non-TP Liabilities} \times \textit{Up to 1 Year Simplified Duration} \times \textit{Up to 1 Year Risk-Free Rate} \times \textit{Up to 1 Year Downward Stress}\end{aligned}

6Step 6

1 to 3 Years Simplified Duration

\textit{1 to 3 Years Simplified Duration} = 2

7Step 7

1 to 3 Years Upward Stress

\textit{1 to 3 Years Upward Stress} = 65

8Step 8

1 to 3 Years Downward Stress

\textit{1 to 3 Years Downward Stress} = 45

9Step 9

article_103_asset_bucket_2_up_leg

\textit{article\_103\_asset\_bucket\_2\_up\_leg} = \textit{1 to 3 Years Assets Less Non-TP Liabilities} \times \textit{1 to 3 Years Simplified Duration} \times \textit{1 to 3 Years Risk-Free Rate} \times \textit{1 to 3 Years Upward Stress}

\textit{article\_103\_asset\_bucket\_2\_up\_leg} = \textit{1 to 3 Years Assets Less Non-TP Liabilities} \times \textit{1 to 3 Years Simplified Duration} \times \textit{1 to 3 Years Risk-Free Rate} \times \textit{1 to 3 Years Upward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_2\_up\_leg} &= \textit{1 to 3 Years Assets Less Non-TP Liabilities} \times \textit{1 to 3 Years Simplified Duration} \times \textit{1 to 3 Years Risk-Free Rate} \times \textit{1 to 3 Years Upward Stress}\end{aligned}

10Step 10

article_103_asset_bucket_2_down_leg

\textit{article\_103\_asset\_bucket\_2\_down\_leg} = \textit{1 to 3 Years Assets Less Non-TP Liabilities} \times \textit{1 to 3 Years Simplified Duration} \times \textit{1 to 3 Years Risk-Free Rate} \times \textit{1 to 3 Years Downward Stress}

\textit{article\_103\_asset\_bucket\_2\_down\_leg} = \textit{1 to 3 Years Assets Less Non-TP Liabilities} \times \textit{1 to 3 Years Simplified Duration} \times \textit{1 to 3 Years Risk-Free Rate} \times \textit{1 to 3 Years Downward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_2\_down\_leg} &= \textit{1 to 3 Years Assets Less Non-TP Liabilities} \times \textit{1 to 3 Years Simplified Duration} \times \textit{1 to 3 Years Risk-Free Rate} \times \textit{1 to 3 Years Downward Stress}\end{aligned}

11Step 11

3 to 5 Years Simplified Duration

\textit{3 to 5 Years Simplified Duration} = 4

12Step 12

3 to 5 Years Upward Stress

\textit{3 to 5 Years Upward Stress} = 55

13Step 13

3 to 5 Years Downward Stress

\textit{3 to 5 Years Downward Stress} = 35

14Step 14

article_103_asset_bucket_3_up_leg

\textit{article\_103\_asset\_bucket\_3\_up\_leg} = \textit{3 to 5 Years Assets Less Non-TP Liabilities} \times \textit{3 to 5 Years Simplified Duration} \times \textit{3 to 5 Years Risk-Free Rate} \times \textit{3 to 5 Years Upward Stress}

\textit{article\_103\_asset\_bucket\_3\_up\_leg} = \textit{3 to 5 Years Assets Less Non-TP Liabilities} \times \textit{3 to 5 Years Simplified Duration} \times \textit{3 to 5 Years Risk-Free Rate} \times \textit{3 to 5 Years Upward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_3\_up\_leg} &= \textit{3 to 5 Years Assets Less Non-TP Liabilities} \times \textit{3 to 5 Years Simplified Duration} \times \textit{3 to 5 Years Risk-Free Rate} \times \textit{3 to 5 Years Upward Stress}\end{aligned}

15Step 15

article_103_asset_bucket_3_down_leg

\textit{article\_103\_asset\_bucket\_3\_down\_leg} = \textit{3 to 5 Years Assets Less Non-TP Liabilities} \times \textit{3 to 5 Years Simplified Duration} \times \textit{3 to 5 Years Risk-Free Rate} \times \textit{3 to 5 Years Downward Stress}

\textit{article\_103\_asset\_bucket\_3\_down\_leg} = \textit{3 to 5 Years Assets Less Non-TP Liabilities} \times \textit{3 to 5 Years Simplified Duration} \times \textit{3 to 5 Years Risk-Free Rate} \times \textit{3 to 5 Years Downward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_3\_down\_leg} &= \textit{3 to 5 Years Assets Less Non-TP Liabilities} \times \textit{3 to 5 Years Simplified Duration} \times \textit{3 to 5 Years Risk-Free Rate} \times \textit{3 to 5 Years Downward Stress}\end{aligned}

16Step 16

5 to 10 Years Simplified Duration

\textit{5 to 10 Years Simplified Duration} = 7

17Step 17

5 to 10 Years Upward Stress

\textit{5 to 10 Years Upward Stress} = 45

18Step 18

5 to 10 Years Downward Stress

\textit{5 to 10 Years Downward Stress} = 25

19Step 19

article_103_asset_bucket_4_up_leg

\textit{article\_103\_asset\_bucket\_4\_up\_leg} = \textit{5 to 10 Years Assets Less Non-TP Liabilities} \times \textit{5 to 10 Years Simplified Duration} \times \textit{5 to 10 Years Risk-Free Rate} \times \textit{5 to 10 Years Upward Stress}

\textit{article\_103\_asset\_bucket\_4\_up\_leg} = \textit{5 to 10 Years Assets Less Non-TP Liabilities} \times \textit{5 to 10 Years Simplified Duration} \times \textit{5 to 10 Years Risk-Free Rate} \times \textit{5 to 10 Years Upward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_4\_up\_leg} &= \textit{5 to 10 Years Assets Less Non-TP Liabilities} \times \textit{5 to 10 Years Simplified Duration} \times \textit{5 to 10 Years Risk-Free Rate} \times \textit{5 to 10 Years Upward Stress}\end{aligned}

20Step 20

article_103_asset_bucket_4_down_leg

\textit{article\_103\_asset\_bucket\_4\_down\_leg} = \textit{5 to 10 Years Assets Less Non-TP Liabilities} \times \textit{5 to 10 Years Simplified Duration} \times \textit{5 to 10 Years Risk-Free Rate} \times \textit{5 to 10 Years Downward Stress}

\textit{article\_103\_asset\_bucket\_4\_down\_leg} = \textit{5 to 10 Years Assets Less Non-TP Liabilities} \times \textit{5 to 10 Years Simplified Duration} \times \textit{5 to 10 Years Risk-Free Rate} \times \textit{5 to 10 Years Downward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_4\_down\_leg} &= \textit{5 to 10 Years Assets Less Non-TP Liabilities} \times \textit{5 to 10 Years Simplified Duration} \times \textit{5 to 10 Years Risk-Free Rate} \times \textit{5 to 10 Years Downward Stress}\end{aligned}

21Step 21

10 Years and Over Simplified Duration

\textit{10 Years and Over Simplified Duration} = 12

22Step 22

10 Years and Over Upward Stress

\textit{10 Years and Over Upward Stress} = 35

23Step 23

10 Years and Over Downward Stress

\textit{10 Years and Over Downward Stress} = 15

24Step 24

article_103_asset_bucket_5_up_leg

\textit{article\_103\_asset\_bucket\_5\_up\_leg} = \textit{10 Years and Over Assets Less Non-TP Liabilities} \times \textit{10 Years and Over Simplified Duration} \times \textit{10 Years and Over Risk-Free Rate} \times \textit{10 Years and Over Upward Stress}

\textit{article\_103\_asset\_bucket\_5\_up\_leg} = \textit{10 Years and Over Assets Less Non-TP Liabilities} \times \textit{10 Years and Over Simplified Duration} \times \textit{10 Years and Over Risk-Free Rate} \times \textit{10 Years and Over Upward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_5\_up\_leg} &= \textit{10 Years and Over Assets Less Non-TP Liabilities} \times \textit{10 Years and Over Simplified Duration} \times \textit{10 Years and Over Risk-Free Rate} \times \textit{10 Years and Over Upward Stress}\end{aligned}

25Step 25

article_103_asset_bucket_5_down_leg

\textit{article\_103\_asset\_bucket\_5\_down\_leg} = \textit{10 Years and Over Assets Less Non-TP Liabilities} \times \textit{10 Years and Over Simplified Duration} \times \textit{10 Years and Over Risk-Free Rate} \times \textit{10 Years and Over Downward Stress}

\textit{article\_103\_asset\_bucket\_5\_down\_leg} = \textit{10 Years and Over Assets Less Non-TP Liabilities} \times \textit{10 Years and Over Simplified Duration} \times \textit{10 Years and Over Risk-Free Rate} \times \textit{10 Years and Over Downward Stress}

\begin{aligned}\textit{article\_103\_asset\_bucket\_5\_down\_leg} &= \textit{10 Years and Over Assets Less Non-TP Liabilities} \times \textit{10 Years and Over Simplified Duration} \times \textit{10 Years and Over Risk-Free Rate} \times \textit{10 Years and Over Downward Stress}\end{aligned}

26Step 26

Liability Block 1 Upward Stress

\textit{Liability Block 1 Upward Stress} = 35

27Step 27

Liability Block 1 Downward Stress

\textit{Liability Block 1 Downward Stress} = 15

28Step 28

article_103_liability_block_1_up_leg

\textit{article\_103\_liability\_block\_1\_up\_leg} = \textit{Liability Block 1 Best Estimate} \times \textit{Liability Block 1 Modified Duration} \times \textit{Liability Block 1 Risk-Free Rate} \times \textit{Liability Block 1 Upward Stress}

\textit{article\_103\_liability\_block\_1\_up\_leg} = \textit{Liability Block 1 Best Estimate} \times \textit{Liability Block 1 Modified Duration} \times \textit{Liability Block 1 Risk-Free Rate} \times \textit{Liability Block 1 Upward Stress}

\begin{aligned}\textit{article\_103\_liability\_block\_1\_up\_leg} &= \textit{Liability Block 1 Best Estimate} \times \textit{Liability Block 1 Modified Duration} \times \textit{Liability Block 1 Risk-Free Rate} \times \textit{Liability Block 1 Upward Stress}\end{aligned}

29Step 29

article_103_liability_block_1_down_leg

\textit{article\_103\_liability\_block\_1\_down\_leg} = \textit{Liability Block 1 Best Estimate} \times \textit{Liability Block 1 Modified Duration} \times \textit{Liability Block 1 Risk-Free Rate} \times \textit{Liability Block 1 Downward Stress}

\textit{article\_103\_liability\_block\_1\_down\_leg} = \textit{Liability Block 1 Best Estimate} \times \textit{Liability Block 1 Modified Duration} \times \textit{Liability Block 1 Risk-Free Rate} \times \textit{Liability Block 1 Downward Stress}

\begin{aligned}\textit{article\_103\_liability\_block\_1\_down\_leg} &= \textit{Liability Block 1 Best Estimate} \times \textit{Liability Block 1 Modified Duration} \times \textit{Liability Block 1 Risk-Free Rate} \times \textit{Liability Block 1 Downward Stress}\end{aligned}

30Step 30

Liability Block 2 Upward Stress

\textit{Liability Block 2 Upward Stress} = 45

31Step 31

Liability Block 2 Downward Stress

\textit{Liability Block 2 Downward Stress} = 25

32Step 32

article_103_liability_block_2_up_leg

\textit{article\_103\_liability\_block\_2\_up\_leg} = \textit{Liability Block 2 Best Estimate} \times \textit{Liability Block 2 Modified Duration} \times \textit{Liability Block 2 Risk-Free Rate} \times \textit{Liability Block 2 Upward Stress}

\textit{article\_103\_liability\_block\_2\_up\_leg} = \textit{Liability Block 2 Best Estimate} \times \textit{Liability Block 2 Modified Duration} \times \textit{Liability Block 2 Risk-Free Rate} \times \textit{Liability Block 2 Upward Stress}

\begin{aligned}\textit{article\_103\_liability\_block\_2\_up\_leg} &= \textit{Liability Block 2 Best Estimate} \times \textit{Liability Block 2 Modified Duration} \times \textit{Liability Block 2 Risk-Free Rate} \times \textit{Liability Block 2 Upward Stress}\end{aligned}

33Step 33

article_103_liability_block_2_down_leg

\textit{article\_103\_liability\_block\_2\_down\_leg} = \textit{Liability Block 2 Best Estimate} \times \textit{Liability Block 2 Modified Duration} \times \textit{Liability Block 2 Risk-Free Rate} \times \textit{Liability Block 2 Downward Stress}

\textit{article\_103\_liability\_block\_2\_down\_leg} = \textit{Liability Block 2 Best Estimate} \times \textit{Liability Block 2 Modified Duration} \times \textit{Liability Block 2 Risk-Free Rate} \times \textit{Liability Block 2 Downward Stress}

\begin{aligned}\textit{article\_103\_liability\_block\_2\_down\_leg} &= \textit{Liability Block 2 Best Estimate} \times \textit{Liability Block 2 Modified Duration} \times \textit{Liability Block 2 Risk-Free Rate} \times \textit{Liability Block 2 Downward Stress}\end{aligned}

34Step 34

Liability Block 3 Upward Stress

\textit{Liability Block 3 Upward Stress} = 55

35Step 35

Liability Block 3 Downward Stress

\textit{Liability Block 3 Downward Stress} = 35

36Step 36

article_103_liability_block_3_up_leg

\textit{article\_103\_liability\_block\_3\_up\_leg} = \textit{Liability Block 3 Best Estimate} \times \textit{Liability Block 3 Modified Duration} \times \textit{Liability Block 3 Risk-Free Rate} \times \textit{Liability Block 3 Upward Stress}

\textit{article\_103\_liability\_block\_3\_up\_leg} = \textit{Liability Block 3 Best Estimate} \times \textit{Liability Block 3 Modified Duration} \times \textit{Liability Block 3 Risk-Free Rate} \times \textit{Liability Block 3 Upward Stress}

\begin{aligned}\textit{article\_103\_liability\_block\_3\_up\_leg} &= \textit{Liability Block 3 Best Estimate} \times \textit{Liability Block 3 Modified Duration} \times \textit{Liability Block 3 Risk-Free Rate} \times \textit{Liability Block 3 Upward Stress}\end{aligned}

37Step 37

article_103_liability_block_3_down_leg

\textit{article\_103\_liability\_block\_3\_down\_leg} = \textit{Liability Block 3 Best Estimate} \times \textit{Liability Block 3 Modified Duration} \times \textit{Liability Block 3 Risk-Free Rate} \times \textit{Liability Block 3 Downward Stress}

\textit{article\_103\_liability\_block\_3\_down\_leg} = \textit{Liability Block 3 Best Estimate} \times \textit{Liability Block 3 Modified Duration} \times \textit{Liability Block 3 Risk-Free Rate} \times \textit{Liability Block 3 Downward Stress}

\begin{aligned}\textit{article\_103\_liability\_block\_3\_down\_leg} &= \textit{Liability Block 3 Best Estimate} \times \textit{Liability Block 3 Modified Duration} \times \textit{Liability Block 3 Risk-Free Rate} \times \textit{Liability Block 3 Downward Stress}\end{aligned}

38Step 38

Total Asset Upward Leg

\textit{Total Asset Upward Leg} = \textit{article\_103\_asset\_bucket\_1\_up\_leg} + \textit{article\_103\_asset\_bucket\_2\_up\_leg} + \textit{article\_103\_asset\_bucket\_3\_up\_leg} + \textit{article\_103\_asset\_bucket\_4\_up\_leg} + \textit{article\_103\_asset\_bucket\_5\_up\_leg}

\textit{Total Asset Upward Leg} = \textit{article\_103\_asset\_bucket\_1\_up\_leg} + \textit{article\_103\_asset\_bucket\_2\_up\_leg} + \textit{article\_103\_asset\_bucket\_3\_up\_leg} + \textit{article\_103\_asset\_bucket\_4\_up\_leg} + \textit{article\_103\_asset\_bucket\_5\_up\_leg}

\begin{aligned}\textit{Total Asset Upward Leg} &= \textit{article\_103\_asset\_bucket\_1\_up\_leg} + \textit{article\_103\_asset\_bucket\_2\_up\_leg} \\ &\quad + \textit{article\_103\_asset\_bucket\_3\_up\_leg} \\ &\quad + \textit{article\_103\_asset\_bucket\_4\_up\_leg} + \textit{article\_103\_asset\_bucket\_5\_up\_leg}\end{aligned}

39Step 39

Total Asset Downward Leg

\textit{Total Asset Downward Leg} = \textit{article\_103\_asset\_bucket\_1\_down\_leg} + \textit{article\_103\_asset\_bucket\_2\_down\_leg} + \textit{article\_103\_asset\_bucket\_3\_down\_leg} + \textit{article\_103\_asset\_bucket\_4\_down\_leg} + \textit{article\_103\_asset\_bucket\_5\_down\_leg}

\textit{Total Asset Downward Leg} = \textit{article\_103\_asset\_bucket\_1\_down\_leg} + \textit{article\_103\_asset\_bucket\_2\_down\_leg} + \textit{article\_103\_asset\_bucket\_3\_down\_leg} + \textit{article\_103\_asset\_bucket\_4\_down\_leg} + \textit{article\_103\_asset\_bucket\_5\_down\_leg}

\begin{aligned}\textit{Total Asset Downward Leg} &= \textit{article\_103\_asset\_bucket\_1\_down\_leg} + \textit{article\_103\_asset\_bucket\_2\_down\_leg} \\ &\quad + \textit{article\_103\_asset\_bucket\_3\_down\_leg} \\ &\quad + \textit{article\_103\_asset\_bucket\_4\_down\_leg} + \textit{article\_103\_asset\_bucket\_5\_down\_leg}\end{aligned}

40Step 40

Total Liability Upward Leg

\textit{Total Liability Upward Leg} = \textit{article\_103\_liability\_block\_1\_up\_leg} + \textit{article\_103\_liability\_block\_2\_up\_leg} + \textit{article\_103\_liability\_block\_3\_up\_leg}

41Step 41

Total Liability Downward Leg

\textit{Total Liability Downward Leg} = \textit{article\_103\_liability\_block\_1\_down\_leg} + \textit{article\_103\_liability\_block\_2\_down\_leg} + \textit{article\_103\_liability\_block\_3\_down\_leg}

42Step 42

IR Up

\textit{IR Up} = \textit{Total Asset Upward Leg} - \textit{Total Liability Upward Leg}

43Step 43

IR Down

\textit{IR Down} = \textit{Total Asset Downward Leg} - \textit{Total Liability Downward Leg}

44Step 44

Interest Rate Risk Capital

\textit{Interest Rate Risk Capital} = \max(0, \textit{IR Up}, \textit{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 engine. 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 LACDT 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 standard-formula reporting view, not to replace the connected article-chain result where the simplification is not justified.^[5]

Sources

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.