The market risk module: risk-free curves, the symmetric adjustment and why your SCR moves every month

Market risk is usually the largest module in a standard formula SCR, and the only one whose inputs change every month without anyone touching the balance sheet. EIOPA republishes the risk-free interest rate term structures and the symmetric adjustment of the equity shock in the first business days of each month, and both feed straight into the capital charge. This article covers the six sub-modules, the correlation matrix that aggregates them, what EIOPA publishes, how the symmetric adjustment is calculated, a worked example with round numbers, and where every figure lands in the QRTs. It is written for the person who runs or checks the calculation, and for anyone evaluating SCR Tool, our software for the standard formula market risk, who wants the mechanics before the demo.

The six sub-modules

Article 105(5) of Directive 2009/138/EC names the sub-modules and Article 164(1) of Delegated Regulation (EU) 2015/35 repeats the list. Each is a loss in basic own funds under a prescribed instantaneous shock.

Two details matter later. The interest rate shocks in Articles 166 and 167 are relative: at ten years the upward shock is 42 percent of the current rate and the downward shock 31 percent, with a minimum upward move of one percentage point and no downward move on rates already below zero. A higher curve therefore means a larger shock in basis points. And Article 180(2) sets the spread risk factor to zero for bonds issued by Member States’ central governments in their own currency, which is why the example below carries no spread charge.

The correlation matrix in Article 164(3)

The module-level matrix in Annex IV of the Directive is covered in our post on the SCR standard formula calculation. Inside the market risk module the six sub-modules are aggregated with a second matrix, set out in Article 164(3) of the Delegated Regulation:

The parameter A depends on which interest rate scenario bites. When the upward shock in Article 166 produces the larger loss, A is 0. When the downward shock in Article 167 bites, the usual case for a life insurer with liabilities longer than its assets, A is 0.5.

From 30 January 2027 point (41) of Delegated Regulation (EU) 2026/269 replaces this matrix with a version that has a second parameter, B, for the pair interest rate and spread: 0 in the upward scenario and 0.25 in the downward one, down from 0.5 today. The same regulation recalibrates the interest rate shocks so that rates can fall below zero, with a maturity dependent floor. The changes to the Directive itself apply from the same date.

What EIOPA publishes every month

EIOPA’s risk-free interest rate term structures page carries a zip file for every month end, released in the first business days of the following month: the August 2026 curves came out on 3 September, and the remaining 2026 dates are 5 October, 5 November and 3 December. Articles 43 to 54 of the Delegated Regulation set the method.

The basic term structure for each currency is built from swap rates adjusted for credit risk (Articles 44 and 45). Beyond the last liquid point the curve is extrapolated towards the ultimate forward rate (Article 46). For the euro the last liquid point is 20 years and the UFR is 3.30 percent, kept for 2027 by EIOPA’s announcement of 30 March 2026. Article 47 lets the UFR move only when long-term expectations change, so it changes by small steps, if at all, once a year.

The zip also contains the curves with the volatility adjustment. Under Article 77d of the Directive the VA is 65 percent of the risk-corrected spread of a reference portfolio per currency, with a country addition when the country spread is high; Articles 49 to 51 of the Delegated Regulation define the portfolio and the risk correction. EIOPA publishes the VA per currency and per country next to the curves. From 30 January 2027 the extrapolation moves to a first smoothing point method and the VA formula changes; the numbers above are the ones in force for year end 2026.

The same package includes the shocked curves for Articles 166 and 167, already floored and interpolated.

The symmetric adjustment under Article 172

Article 106 of the Directive requires the equity shock to include a symmetric adjustment based on the current level of an equity index against its average over a fixed period. Article 172 of the Delegated Regulation fills in the numbers. EIOPA maintains an index built for this purpose, averages its daily levels over the last 36 months (AI), compares that with the current level (CI), and computes:

SA = ½ × ( (CI − AI) / AI − 8% )

An index sitting 8 percent above its three year average gives an adjustment of zero. Article 172(4) caps the result at plus or minus 10 percent, matching Article 106(3) of the Directive. Point (51) of Delegated Regulation (EU) 2026/269 replaces that paragraph with a band of minus 13 to plus 13 percent from 30 January 2027, in line with Directive (EU) 2025/2; the recital says the narrower band pushed undertakings to sell equities or raise capital after short-lived market falls.

Three illustrative index levels, each against an average of 100:

The adjustment is added to the 39 percent type 1 shock and the 49 percent type 2 shock in Article 169; qualifying infrastructure equities take a scaled share of it, and strategic participations and long-term equity investments under Article 171a take a flat 22 percent without it. EIOPA publishes the value monthly on its symmetric adjustment page.

A worked example: one balance sheet, two months

Take a life insurer with three lines on its Solvency II balance sheet, in millions: type 1 listed equities of 20, euro government bonds of 60 with a modified duration of 4, and a best estimate of technical provisions of 70 with a modified duration of 8. No property, no foreign currency, no concentration above the thresholds, and no spread charge on the bonds under Article 180(2).

Month 1: the ten year euro basic risk-free rate is 2.50 percent and the published symmetric adjustment is minus 3 percent. Month 2: the curve has risen to 3.00 percent at ten years and the adjustment is plus 2 percent. The holdings do not change.

Equity risk first. The shock is 39 percent plus the adjustment, applied to 20:

Interest rate risk needs a simplification here. The real calculation shocks every maturity and revalues assets and liabilities; below, the ten year rate stands in for the whole curve and a duration approximation gives the change in value. The downward shock is 31 percent of the rate, so the rate falls by 0.775 percentage points in month 1 and by 0.93 in month 2. Liabilities gain more than assets because their duration is longer, and the loss in basic own funds is the duration gap times the move: (8 × 70 − 4 × 60) = 320 per percentage point.

The upward scenario is a gain for this insurer in both months, so the downward scenario bites and A is 0.5. Aggregating with the Article 164(3) matrix:

Month 1: sqrt(2.48² + 7.20² + 2 × 0.5 × 2.48 × 7.20) = sqrt(75.85) = 8.71

Month 2: sqrt(2.98² + 8.20² + 2 × 0.5 × 2.98 × 8.20) = sqrt(100.56) = 10.03

The market risk charge rises by 1.32 million, about 15 percent, on a balance sheet nobody traded. Roughly one million comes from the equity shock moving five points, the rest from the larger shock on a higher curve. The diversification credit within the module is 0.97 in month 1 and 1.15 in month 2. The higher curve also lowers the best estimate and lifts own funds, so the ratio moves less than the SCR does, but the capital requirement is the number the board sees first.

Where each figure lands in the QRTs

Every asset behind the calculation starts in template S.06.02, the list of assets, reported item by item. The columns the market risk calculation reads are C0040 (asset ID code), C0170 (total Solvency II amount), C0280 (currency), C0290 (CIC, which decides whether an item is a bond, an equity or property), C0320 to C0340 (rating, nominated ECAI and credit quality step, which drive the spread factor) and C0390 (maturity date). Funds are looked through so their holdings are shocked as if held directly.

Template S.26.01, the market risk annex to the SCR, receives the sub-module results. Rows R0110 and R0120 hold the interest rate down and up scenarios and R0100 the charge that survived. R0200 is equity risk, split into R0210 for type 1 and R0250 for type 2. R0300 is property, R0400 spread with R0410 for bonds and loans, R0500 market risk concentrations, R0600 currency with R0610 and R0620 for the two scenarios, R0700 the diversification within the module and R0800 the total. Column C0060 carries the net figure after the loss-absorbing capacity of technical provisions and C0080 the gross figure. In the example, month 2 would show 2.98 in R0100/C0080, 8.20 in R0200/C0080, minus 1.15 in R0700/C0080 and 10.03 in R0800/C0080.

The total in R0800 becomes the market risk line in S.25.01, row R0010, gross in C0040 and net in C0030.

Where this lands in the software

SCR Tool’s Market-Risk-Constructor takes the asset data and the look-through information for funds from QRT Tool, so the S.06.02 list above is the input rather than a separate extract. The risk-free interest rate term structures and the symmetric adjustment of the equity shock are embedded, so the month 2 figures in the example come from importing last quarter’s assets against the new parameters, with no manual update of curves or shocks. The transparency list shows the charge on each asset, which is how the 8.20 on the equities and the 2.98 on the duration gap trace back to individual lines. Results are presented in the QRT format, so S.26.01 and row R0010 of S.25.01 come out as reported. UK undertakings can import the PRA variants of the term structures and the symmetric adjustment instead.