The market risk module

In October 2020 almost the whole euro swap curve was below zero. Solvency II's down shock multiplied each positive rate by a factor below one and left negative rates alone, so an insurer losing money when rates fall was told it faced almost no risk. Five years later the Commission adopted the fix; it applies from 30 January 2027. On RiskAtoms' book it raises the interest charge from €393.0m to €1,529.2m, for a market module that is already 39% of the modules' sum.

Each sub-module applies one instantaneous shock and measures the fall in basic own funds: assets and liabilities both revalued (L3.8.11: Insurer asset-liability management). It is a scenario (L2.5.05: Scenario analysis), calibrated to be a 1-in-200 annual loss. Art 164 lists six and combines them:

Interest rate: relative shocks, and what replaces them

Today the shocks are relativeRelative shock: a change proportional to the rate itself, r(1 + s). Today's interest rate shocks are relative, with a 1-point minimum on the way up and no fall for rates at or below zero (Arts 166–167).: each zero rate rises by a share s_up(t) of itself, from 70% at one year to 26% at 20 years and 20% from 90 years, but by at least one percentage point (Art 166); it falls by s_down(t), from 75% to 29%, and only if it is positive (Art 167). The insurer takes the larger loss of the two. On RiskAtoms' curve, which runs from 2.00% to 2.75%, the up scenario costs €393.0m and the down €87.3m: up binds, because the bond portfolio loses more than the liabilities gain (L1.4.08: Duration).

Delegated Regulation (EU) 2026/269 replaces both from 30 January 2027 with the shift approachShift approach: the 2027 interest shocks, r(1 + s) + b up and r(1 − s) − b down, with a floor on the way down. The absolute part b moves low and negative rates too. EIOPA proposed in its 2020 Opinion: a relative part plus an absolute shift b, so low and negative rates move too, and a floor on the way down of −1.25% to 7 years rising to −0.893% from 20 years. The 1-point minimum goes. The shift is in basis points against the base curve:

The 2027 shocks are about twice today's on this curve. Revaluing the book on them, the up loss becomes €1,529.2m and the down €1,382.2m from 2027. Shocking only to 20 years and extrapolating beyond with the 2027 method, as the act does, gives €1,544.8m. L4.6.12: The 2025 review: Solvency II from 2027 takes the whole review.

Equity: four buckets and a dampener

Type 1Type 1 equities: listed in regulated markets of EEA or OECD countries, and some funds. Shock 39% + SA. Type 2: everything else, such as unlisted shares and private equity; 49% + SA (Art 169). equities, listed in the EEA or OECD, fall 39% + SA; type 2, which includes private equity, 49% + SA. Strategic participations, stakes held for the long run in a related undertaking, fall 22% (Art 171), as does qualifying long-term equityLong-term equity: a portfolio identified and managed separately and held for more than five years on average, shocked at 22% (Arts 169, 171a). Today it must be ring-fenced and able to avoid forced sales for ten years; from 2027, five years (Directive Art 105a). (Art 171a). Type 1 and type 2 are combined with a correlation of 0.75. A 39% fall is roughly what a rise in the required return of a few points does to a dividend-discount value (L1.5.03: Valuing equities: the dividend discount model), and about 2.5 standard deviations of a 15% annual volatility (L1.5.06: Equity returns and volatility).

The symmetric adjustmentSymmetric adjustment (SA): a correction to the equity shock, half of the index's rise over its 36-month average less 8%, kept within ±10% (±13% from 2027). It lowers the shock after falls and raises it after rises (Art 172). is ½ × (index ÷ its 36-month average − 1 − 8%), published monthly by EIOPA and kept within ±10% (Art 172). Ten per cent above average gives 1.0%; thirty per cent above gives 11%, cut to 10%; twenty per cent below gives −14%, cut to −10%. After a crash the shock falls, so insurers are not pushed to sell into it. Level 3 takes SA = 0. Across today's range the equity charge runs from €1,243.0m to €1,921.2m; with the 2027 limits of ±13%, from €1,141.2m to €2,022.9m. Treat every listed share as long-term equity and it falls to €1,076.0m, and the market module to €2,916.0m, but only if the portfolio meets the conditions: identified and managed separately, held more than five years on average, and able to avoid forced sales for ten years (five from 2027). Put options bought against the shares reduce the charge if they meet the risk mitigation rules of Arts 209–210 (L2.6.03: Hedging with options).

Property and spread

Property falls 25% (Art 174): €750m on €3,000m. Spread charges each bond its market value × a factor that rises with modified duration and falls with credit quality, set by credit quality stepCredit quality step (CQS): the Solvency II scale 0–6 that maps external ratings: AAA is 0, AA 1, A 2, BBB 3, BB 4, B 5, lower 6. (Art 176; ratings in L1.4.07: Credit ratings and credit spreads). Up to five years it is b × duration; beyond, a + b × (duration − 5), and so on. Covered bonds rated CQS 0–1 get lower factors (Art 180(1)); bonds of EU Member State governments in their own currency get 0% (Art 180(2)), which is why RiskAtoms' €28,000m of government bonds carry no spread charge.

Concentration and currency

ConcentrationConcentration risk: a charge on any single name (a group counts as one) above a threshold share of the asset base: 3% for CQS 0–2, 1.5% below (Arts 182–187). charges any single name, a whole group counted as one, whose exposure E is more than a threshold CT of the asset base: XS = max(0, E ÷ Assets − CT), and the charge is Assets × XS × g, with g from 12% (CQS 0–1) to 73% (CQS 4–6) (Arts 182–186). Names are combined as the square root of the sum of squares. The base matters. Art 184 takes total assets less, among others, exposures already in the counterparty default module (cash at bank, reinsurance recoverables, receivables), deferred tax assets and intangibles: €63,700m on our reading of the book illustrative. The Module 4.6 data uses Solvency II assets less government bonds, €41,500m; government bonds carry a 0% factor instead (Art 187(3)).

The same €2,500m name costs €123.7m on one base and €263.6m on the other illustrative; RiskAtoms holds no such name, so its charge is nil either way. Currency is the larger loss from a 25% rise or fall of each foreign currency against the euro (Art 188): €1,000m of US dollar shares would add €250m (L1.6.07: Currency risk for companies and investors). RiskAtoms holds everything in euro.

The matrix that switches

The six charges are combined as √(s′Cs) (L3.1.03: Two correlated assets). Art 164(3) sets the interest rate row by the scenario that binds: A = 0 with equity and property if the up shock is the loss, 0.5 if the down shock is. Falling rates come with falling share prices in a crisis; rising rates have less to do with them. Today the interest–spread entry follows A; from 2027 it is 0.25 in the down case.

Had the down scenario bound with the same charges, the module would be €3,602.8m today (A = B = 0.5) and €3,563.6m from 2027, against €3,391.4m with up. Today's down matrix differs from the one shown only in B = 0.50.

In full (Delegated Regulation (EU) 2015/35 Arts 164–188; Arts 164, 166, 167 and 172 as amended by 2026/269 from 30 January 2027):

• Each loss is the fall in basic own funds, assets less liabilities, not the fall in assets alone. Policies with profit sharing pass part of it back (L4.6.05: The standard formula: structure).
• Max and min do the work of the caps and floors (M-A11: Min, max, floors and caps); every shock is a percentage of a value or of a rate (M-A01: Percentages).
• From 2027 the SA limit is ±13%, and the interest shocks have the form shown in the walkthrough, with s and b tabled for 1 to 50 years in 2026/269.

First the curve. Move it down until rates turn negative and watch today's down shock stop and the up shock hit its 1-point minimum, while the 2027 shocks keep moving until the floor.

Then the module. Switch to the 2027 rules, force the down scenario to see the matrix change, push the symmetric adjustment past its limit, and move listed shares into long-term equity.

RiskAtoms' curve at 31 December 2025 illustrative. Rates to four decimal places.

Delegated Regulation (EU) 2015/35 Arts 164–188; Directive 2009/138/EC Art 106 (symmetric adjustment) and, from 2027, Art 105a (long-term equity) as amended by Directive (EU) 2025/2. Amendments by Delegated Regulation (EU) 2026/269 apply from 30 January 2027 as at 4 Nov 2026.

Insurers with a matching adjustment or volatility adjustment recompute the spread and interest charges with them, and an internal model may replace any sub-module (L4.6.09: Internal models, L4.6.10: Long-term guarantee measures and transitionals).

• Market risk is six sub-modules (Arts 164–188), each an instantaneous shock to own funds, combined with a six-by-six matrix whose interest entries switch with the binding scenario.
• Today's interest shocks are relative, with a 1-point minimum up and no fall for negative rates; from 2027 they add an absolute shift and a floor. On the book, €393.0m becomes €1,529.2m.
• Equity: 39% + SA (type 1), 49% + SA (type 2), 22% for strategic and long-term equity, correlated 0.75; SA within ±10%, ±13% from 2027. RiskAtoms: €1,582.1m.
• Property 25%; spread = value × factor by CQS and duration, 0% for EU Member State governments in their own currency; concentration above 3% (CQS 0–2) or 1.5% of the base; currency 25%.
• RiskAtoms' market module is €3,391.4m on a sum of €4,153.6m; on the 2027 interest shocks, €3,699.4m and a ratio of 178.7%.

Relative shock

Relative shock: a change proportional to the rate itself, r(1 + s). Today's interest rate shocks are relative, with a 1-point minimum on the way up and no fall for rates at or below zero (Arts 166–167).

Shift approach

Shift approach: the 2027 interest shocks, r(1 + s) + b up and r(1 − s) − b down, with a floor on the way down. The absolute part b moves low and negative rates too.

Symmetric adjustment

Symmetric adjustment (SA): a correction to the equity shock, half of the index's rise over its 36-month average less 8%, kept within ±10% (±13% from 2027). It lowers the shock after falls and raises it after rises (Art 172).

Type 1 and type 2 equities

Type 1 equities: listed in regulated markets of EEA or OECD countries, and some funds. Shock 39% + SA. Type 2: everything else, such as unlisted shares and private equity; 49% + SA (Art 169).

Long-term equity

Long-term equity: a portfolio identified and managed separately and held for more than five years on average, shocked at 22% (Arts 169, 171a). Today it must be ring-fenced and able to avoid forced sales for ten years; from 2027, five years (Directive Art 105a).

Spread risk

Spread risk: the loss on bonds, loans and securitisations if credit spreads widen, as market value × a factor rising with duration and falling with credit quality (Arts 175–181).

Concentration risk

Concentration risk: a charge on any single name (a group counts as one) above a threshold share of the asset base: 3% for CQS 0–2, 1.5% below (Arts 182–187).

Credit quality step

Credit quality step (CQS): the Solvency II scale 0–6 that maps external ratings: AAA is 0, AA 1, A 2, BBB 3, BB 4, B 5, lower 6.