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Long-Term Equity Eligibility

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Long-Term Equity Eligibility Confirmed (0/1)

1

1Step 1

Candidate Split Total

Candidate Split Total=Candidate Long-Term Equity Type 1 Exposure+Candidate Long-Term Equity Type 2 Exposure\textit{Candidate Split Total} = \textit{Candidate Long-Term Equity Type 1 Exposure} + \textit{Candidate Long-Term Equity Type 2 Exposure}
2Step 2

Candidate Split Matches Total Exposure (0/1)

Candidate Split Matches Total Exposure (0/1)=min⁡(lte⁡(Candidate Split Total,Total Candidate Long-Term Equity Exposure),gte⁡(Candidate Split Total,Total Candidate Long-Term Equity Exposure))\textit{Candidate Split Matches Total Exposure (0/1)} = \min(\operatorname{lte}\left(\textit{Candidate Split Total}, \textit{Total Candidate Long-Term Equity Exposure}\right), \operatorname{gte}\left(\textit{Candidate Split Total}, \textit{Total Candidate Long-Term Equity Exposure}\right))
3Step 3

Directive Article 105a Structural Conditions Passed (0/1)

Directive Article 105a Structural Conditions Passed (0/1)=min⁡(Candidate Subset Clearly Identified (0/1),Long-Term Holding Period Defined (0/1),Exposure Assigned Against BEL (0/1),Portfolio Managed Separately From Trading Book (0/1),Asset and Liability Strategy Remains Consistent (0/1),Candidate Split Matches Total Exposure (0/1))\textit{Directive Article 105a Structural Conditions Passed (0/1)} = \min(\textit{Candidate Subset Clearly Identified (0/1)}, \textit{Long-Term Holding Period Defined (0/1)}, \textit{Exposure Assigned Against BEL (0/1)}, \textit{Portfolio Managed Separately From Trading Book (0/1)}, \textit{Asset and Liability Strategy Remains Consistent (0/1)}, \textit{Candidate Split Matches Total Exposure (0/1)})
4Step 4

Article 171d Fund Wrapper Test Passed (0/1)

Article 171d Fund Wrapper Test Passed (0/1)=max⁡(1−Exposure Held Through Packaged Fund Wrapper (0/1),Lower-Risk Fund Conditions Met (0/1))\textit{Article 171d Fund Wrapper Test Passed (0/1)} = \max(1 - \textit{Exposure Held Through Packaged Fund Wrapper (0/1)}, \textit{Lower-Risk Fund Conditions Met (0/1)})
5Step 5

Maximum Life Long-Term Equity Share

Maximum Life Long-Term Equity Share=Illiquid Liability Base Available for Long-Term Equity Supportmax⁡(1,Total Life Best Estimate TP)\textit{Maximum Life Long-Term Equity Share} = \frac{\textit{Illiquid Liability Base Available for Long-Term Equity Support}}{\max(1, \textit{Total Life Best Estimate TP})}
6Step 6

Life Liability Cover Test Passed (0/1)

Life Liability Cover Test Passed (0/1)=gte⁡(Illiquid Liability Base Available for Long-Term Equity Support,Total Candidate Long-Term Equity Exposure)\textit{Life Liability Cover Test Passed (0/1)} = \operatorname{gte}\left(\textit{Illiquid Liability Base Available for Long-Term Equity Support}, \textit{Total Candidate Long-Term Equity Exposure}\right)
7Step 7

Life Share Limit Test Passed (0/1)

Life Share Limit Test Passed (0/1)=lte⁡(Intended Long-Term Equity Share of Life TP,Maximum Life Long-Term Equity Share)\textit{Life Share Limit Test Passed (0/1)} = \operatorname{lte}\left(\textit{Intended Long-Term Equity Share of Life TP}, \textit{Maximum Life Long-Term Equity Share}\right)
8Step 8

Article 171b Life Method Passed (0/1)

Article 171b Life Method Passed (0/1)=min⁡(Life Methodology Available (0/1),Life Liability Cover Test Passed (0/1),Life Share Limit Test Passed (0/1))\textit{Article 171b Life Method Passed (0/1)} = \min(\textit{Life Methodology Available (0/1)}, \textit{Life Liability Cover Test Passed (0/1)}, \textit{Life Share Limit Test Passed (0/1)})
9Step 9

Non-Life Liquidity Buffer Surplus

Non-Life Liquidity Buffer Surplus=Available Non-Life Liquidity Buffer−Required Non-Life Liquidity Buffer\textit{Non-Life Liquidity Buffer Surplus} = \textit{Available Non-Life Liquidity Buffer} - \textit{Required Non-Life Liquidity Buffer}
10Step 10

Non-Life Liquidity Buffer Test Passed (0/1)

Non-Life Liquidity Buffer Test Passed (0/1)=gte⁡(Available Non-Life Liquidity Buffer,Required Non-Life Liquidity Buffer)\textit{Non-Life Liquidity Buffer Test Passed (0/1)} = \operatorname{gte}\left(\textit{Available Non-Life Liquidity Buffer}, \textit{Required Non-Life Liquidity Buffer}\right)
11Step 11

Article 171b Non-Life Method Passed (0/1)

Article 171b Non-Life Method Passed (0/1)=min⁡(Non-Life Methodology Available (0/1),Non-Life Liquidity Buffer Test Passed (0/1))\textit{Article 171b Non-Life Method Passed (0/1)} = \min(\textit{Non-Life Methodology Available (0/1)}, \textit{Non-Life Liquidity Buffer Test Passed (0/1)})
12Step 12

Selected Article 171b Methodology Available (0/1)

Selected Article 171b Methodology Available (0/1)=max⁡(Article 171b Life Method Passed (0/1),Article 171b Non-Life Method Passed (0/1))\textit{Selected Article 171b Methodology Available (0/1)} = \max(\textit{Article 171b Life Method Passed (0/1)}, \textit{Article 171b Non-Life Method Passed (0/1)})
13Step 13

SCR Coverage Margin Buffer

SCR Coverage Margin Buffer=SCR Coverage Ratio Without Transitional Measures−Required SCR Coverage Margin\textit{SCR Coverage Margin Buffer} = \textit{SCR Coverage Ratio Without Transitional Measures} - \textit{Required SCR Coverage Margin}
14Step 14

SCR Coverage Margin Test Passed (0/1)

SCR Coverage Margin Test Passed (0/1)=gte⁡(SCR Coverage Ratio Without Transitional Measures,Required SCR Coverage Margin)\textit{SCR Coverage Margin Test Passed (0/1)} = \operatorname{gte}\left(\textit{SCR Coverage Ratio Without Transitional Measures}, \textit{Required SCR Coverage Margin}\right)
15Step 15

Ongoing Cashflow Year 1 Non-Negative (0/1)

Ongoing Cashflow Year 1 Non-Negative (0/1)=gte⁡(Projected Ongoing Net Cashflow1,0)\textit{Ongoing Cashflow Year 1 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Ongoing Net Cashflow}_{1}, 0\right)
16Step 16

Ongoing Cashflow Year 2 Non-Negative (0/1)

Ongoing Cashflow Year 2 Non-Negative (0/1)=gte⁡(Projected Ongoing Net Cashflow2,0)\textit{Ongoing Cashflow Year 2 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Ongoing Net Cashflow}_{2}, 0\right)
17Step 17

Ongoing Cashflow Year 3 Non-Negative (0/1)

Ongoing Cashflow Year 3 Non-Negative (0/1)=gte⁡(Projected Ongoing Net Cashflow3,0)\textit{Ongoing Cashflow Year 3 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Ongoing Net Cashflow}_{3}, 0\right)
18Step 18

Ongoing Cashflow Year 4 Non-Negative (0/1)

Ongoing Cashflow Year 4 Non-Negative (0/1)=gte⁡(Projected Ongoing Net Cashflow4,0)\textit{Ongoing Cashflow Year 4 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Ongoing Net Cashflow}_{4}, 0\right)
19Step 19

Ongoing Cashflow Year 5 Non-Negative (0/1)

Ongoing Cashflow Year 5 Non-Negative (0/1)=gte⁡(Projected Ongoing Net Cashflow5,0)\textit{Ongoing Cashflow Year 5 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Ongoing Net Cashflow}_{5}, 0\right)
20Step 20

Stressed Cashflow Year 1 Non-Negative (0/1)

Stressed Cashflow Year 1 Non-Negative (0/1)=gte⁡(Projected Stressed Net Cashflow1,0)\textit{Stressed Cashflow Year 1 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Stressed Net Cashflow}_{1}, 0\right)
21Step 21

Stressed Cashflow Year 2 Non-Negative (0/1)

Stressed Cashflow Year 2 Non-Negative (0/1)=gte⁡(Projected Stressed Net Cashflow2,0)\textit{Stressed Cashflow Year 2 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Stressed Net Cashflow}_{2}, 0\right)
22Step 22

Stressed Cashflow Year 3 Non-Negative (0/1)

Stressed Cashflow Year 3 Non-Negative (0/1)=gte⁡(Projected Stressed Net Cashflow3,0)\textit{Stressed Cashflow Year 3 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Stressed Net Cashflow}_{3}, 0\right)
23Step 23

Stressed Cashflow Year 4 Non-Negative (0/1)

Stressed Cashflow Year 4 Non-Negative (0/1)=gte⁡(Projected Stressed Net Cashflow4,0)\textit{Stressed Cashflow Year 4 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Stressed Net Cashflow}_{4}, 0\right)
24Step 24

Stressed Cashflow Year 5 Non-Negative (0/1)

Stressed Cashflow Year 5 Non-Negative (0/1)=gte⁡(Projected Stressed Net Cashflow5,0)\textit{Stressed Cashflow Year 5 Non-Negative (0/1)} = \operatorname{gte}\left(\textit{Projected Stressed Net Cashflow}_{5}, 0\right)
25Step 25

Article 171c Forced-Selling Test Passed (0/1)

Article 171c Forced-Selling Test Passed (0/1)=min⁡(Risk Tolerance Limits Approved for Long-Term Equity (0/1),Medium-Term Capital Plan Supports Holding Through Stress (0/1),SCR Coverage Margin Test Passed (0/1),Ongoing Cashflow Year 1 Non-Negative (0/1),Ongoing Cashflow Year 2 Non-Negative (0/1),Ongoing Cashflow Year 3 Non-Negative (0/1),Ongoing Cashflow Year 4 Non-Negative (0/1),Ongoing Cashflow Year 5 Non-Negative (0/1),Stressed Cashflow Year 1 Non-Negative (0/1),Stressed Cashflow Year 2 Non-Negative (0/1),Stressed Cashflow Year 3 Non-Negative (0/1),Stressed Cashflow Year 4 Non-Negative (0/1),Stressed Cashflow Year 5 Non-Negative (0/1))\textit{Article 171c Forced-Selling Test Passed (0/1)} = \min(\textit{Risk Tolerance Limits Approved for Long-Term Equity (0/1)}, \textit{Medium-Term Capital Plan Supports Holding Through Stress (0/1)}, \textit{SCR Coverage Margin Test Passed (0/1)}, \textit{Ongoing Cashflow Year 1 Non-Negative (0/1)}, \textit{Ongoing Cashflow Year 2 Non-Negative (0/1)}, \textit{Ongoing Cashflow Year 3 Non-Negative (0/1)}, \textit{Ongoing Cashflow Year 4 Non-Negative (0/1)}, \textit{Ongoing Cashflow Year 5 Non-Negative (0/1)}, \textit{Stressed Cashflow Year 1 Non-Negative (0/1)}, \textit{Stressed Cashflow Year 2 Non-Negative (0/1)}, \textit{Stressed Cashflow Year 3 Non-Negative (0/1)}, \textit{Stressed Cashflow Year 4 Non-Negative (0/1)}, \textit{Stressed Cashflow Year 5 Non-Negative (0/1)})
26Step 26

Selected Reviewed-Framework Approach Passed (0/1)

Selected Reviewed-Framework Approach Passed (0/1)={Selected Article 171b Methodology Available (0/1)if Selected Reviewed-Framework Approach (1=Methodology, 2=Forced-Selling Test)=1Article 171c Forced-Selling Test Passed (0/1)if Selected Reviewed-Framework Approach (1=Methodology, 2=Forced-Selling Test)=2\textit{Selected Reviewed-Framework Approach Passed (0/1)} = \begin{cases} \textit{Selected Article 171b Methodology Available (0/1)} & \text{if } \textit{Selected Reviewed-Framework Approach (1=Methodology, 2=Forced-Selling Test)} = 1 \\ \textit{Article 171c Forced-Selling Test Passed (0/1)} & \text{if } \textit{Selected Reviewed-Framework Approach (1=Methodology, 2=Forced-Selling Test)} = 2 \end{cases}
27Step 27

Long-Term Equity Eligibility Confirmed (0/1)

Long-Term Equity Eligibility Confirmed (0/1)=min⁡(Directive Article 105a Structural Conditions Passed (0/1),Article 171d Fund Wrapper Test Passed (0/1),Selected Reviewed-Framework Approach Passed (0/1))\textit{Long-Term Equity Eligibility Confirmed (0/1)} = \min(\textit{Directive Article 105a Structural Conditions Passed (0/1)}, \textit{Article 171d Fund Wrapper Test Passed (0/1)}, \textit{Selected Reviewed-Framework Approach Passed (0/1)})
28Step 28

Eligible Long-Term Equity Type 1 Exposure

Eligible Long-Term Equity Type 1 Exposure=Candidate Long-Term Equity Type 1 Exposure×Long-Term Equity Eligibility Confirmed (0/1)\textit{Eligible Long-Term Equity Type 1 Exposure} = \textit{Candidate Long-Term Equity Type 1 Exposure} \times \textit{Long-Term Equity Eligibility Confirmed (0/1)}
29Step 29

Eligible Long-Term Equity Type 2 Exposure

Eligible Long-Term Equity Type 2 Exposure=Candidate Long-Term Equity Type 2 Exposure×Long-Term Equity Eligibility Confirmed (0/1)\textit{Eligible Long-Term Equity Type 2 Exposure} = \textit{Candidate Long-Term Equity Type 2 Exposure} \times \textit{Long-Term Equity Eligibility Confirmed (0/1)}
30Step 30

Eligible Long-Term Equity Exposure

Eligible Long-Term Equity Exposure=Eligible Long-Term Equity Type 1 Exposure+Eligible Long-Term Equity Type 2 Exposure\textit{Eligible Long-Term Equity Exposure} = \textit{Eligible Long-Term Equity Type 1 Exposure} + \textit{Eligible Long-Term Equity Type 2 Exposure}
31Step 31

Ineligible Candidate Long-Term Equity Exposure

Ineligible Candidate Long-Term Equity Exposure=Total Candidate Long-Term Equity Exposure−Eligible Long-Term Equity Exposure\textit{Ineligible Candidate Long-Term Equity Exposure} = \textit{Total Candidate Long-Term Equity Exposure} - \textit{Eligible Long-Term Equity Exposure}
32Step 32

Reduced Long-Term Equity Shock Rate

Reduced Long-Term Equity Shock Rate=22\textit{Reduced Long-Term Equity Shock Rate} = 22
33Step 33

long_term_equity_shock_factor

long_term_equity_shock_factor=Reduced Long-Term Equity Shock Rate\textit{long\_term\_equity\_shock\_factor} = \textit{Reduced Long-Term Equity Shock Rate}
34Step 34

Reduced-Shock Long-Term Equity Charge

Reduced-Shock Long-Term Equity Charge=Eligible Long-Term Equity Exposure×long_term_equity_shock_factor\textit{Reduced-Shock Long-Term Equity Charge} = \textit{Eligible Long-Term Equity Exposure} \times \textit{long\_term\_equity\_shock\_factor}

Understand the Long-Term Equity Eligibility

Overview

This calculator implements the reviewed-framework eligibility control for the reduced long-term equity shock within the Solvency II market-risk standard formula. It determines whether a candidate equity subset qualifies for long-term-equity treatment and publishes the eligible Type 1 and Type 2 exposure split that should feed the downstream Equity Risk engine.[1][2][3][4][5]

Input Terms

  • Candidate Long-Term Equity Exposure: The total equity subset the undertaking proposes to classify under the reviewed-framework long-term-equity regime.
  • Directive Article 105a Structural Flags: Governance confirmations covering identification of the subset, holding-period definition, assignment against best estimate liabilities, separate management, and asset-liability consistency.
  • Article 171b Methodology Inputs: Liability-cover and liquidity inputs supporting the methodology route where the undertaking evidences that the assets can be held on a long-term basis.
  • Article 171c Forced-Selling Inputs: SCR-coverage, capital-plan, and projected cashflow inputs used to show that the undertaking is not expected to sell the assets in stress.
  • Article 171d Fund Wrapper Inputs: Checks for collective-investment undertakings so the reduced treatment is not extended to packaged exposures unless the lower-risk-profile conditions are met.

Technical Rationale

The engine turns the reviewed-framework legal tests into a publishable control result. First, it verifies that the candidate Type 1 and Type 2 split reconciles to the stated candidate total and that the structural Article 105a conditions are all met.[1] It then evaluates the selected reviewed-framework path:

  • the Article 171b methodology route, which tests liability coverage and liquidity support for life or non-life business; or
  • the Article 171c forced-selling route, which tests capital-planning resilience and projected cashflow sufficiency through stress.[[ref: delegated-2015-35-art-171b]][4]

Finally, the engine applies the Article 171d collective-investment wrapper gate and, when all relevant conditions pass, outputs the eligible long-term Type 1 and Type 2 exposure split together with the reduced `22%` long-term-equity shock basis for downstream equity SCR use.[5]

Important Notes

  • Eligibility control, not full exposure sourcing: This engine assumes the candidate subset has already been identified from the undertaking's holdings. It does not replace a full look-through and exposure-normalization engine.
  • Downstream dependency: The eligible Type 1 and Type 2 outputs are intended to connect into the public Equity Risk engine so the reduced shock is evidenced rather than manually assumed.
  • Governance evidence still matters: Passing the calculator does not replace the need for documented investment policy, liability linkage, capital-planning evidence, and supervisory traceability supporting the selected route.
  • Reporting: The result is designed as a defensible reviewed-framework control feeding the market-risk and solvency-reporting chain, rather than as a standalone final SCR result.[6]

Sources

  1. Directive 2009/138/EC - Art. 105a (Long-term equity investments) - EUR-Lex
  2. Delegated Regulation (EU) 2015/35 - Art. 171a (Long-term equity investments) - EIOPA
  3. Delegated Regulation (EU) 2015/35 - Art. 171b (Long-term equity investments: methodologies to avoid forced sales) - EUR-Lex
  4. Delegated Regulation (EU) 2015/35 - Art. 171c (Long-term equity investments: forced selling test) - EUR-Lex
  5. Delegated Regulation (EU) 2015/35 - Art. 171d (Long-term equity investments: collective investment undertakings with a lower risk profile) - EUR-Lex
  6. Commission Implementing Regulation (EU) 2015/2450 - QRT S.25.01 - 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.