SCR Calculator User Manual

Version Last modified 2024-3-21

Government and Supranational Bonds

Using government bonds as an example, we explain how the single asset SCR calculation works.

The calculator decides what inputs are needed for each asset type, and also dynamically adjusts the layout according to existing inputs. It provides autocompletion for country, currency and rating inputs and basic checks in a number of other inputs. If any input is deemed wrong or incomplete, the cursor will be stuck there until the input is corrected.

For a fixed income instrument, when a country is selected, the rating input is automatically updated with that country's rating (based on the second best of the Big Three rating agencies' ratings for that country, which is an internally maintained database of the calculator), for your convenience. If this is not what you want, e.g. in the case a corporate bond where the rating is lower than the country's rating, you should manually adjust the rating input. Once you entered all the necessary inputs, click the 'Calculate' button. If anything is incomplete, the calculator will remind you.

The "expected return" input is needed for calculating return-on-SCR and for strategic asset allocation optimisation. It is an important but somewhat subjective measure, so a bit of careful manual intervention is always needed:

  • For fixed income assets, for user convenience, the calculator would auto-populate it to be the same as the coupon rate when the coupon rate is entered by the user. But this does not mean it has to be so; and you should change it if necessary. The user also needs to pay attention not to accidentally cause this change.
  • If it is a floating rate bond, the user might want to manually adjust it to be [margin + base rate]. (Note that the "coupon rate" input box would have appeared as "margin" for a floating rate bond.)
  • For non-fixed-income assets, the expected return is auto-populated as either dividend yield for equities or rental yield for properties; and they are by definition far from accurate. You need to enter a value sensible on a forward-looking basis.
Such Capital Market Assumptions are available from quite a few leading asset managers.

The double arrow button near the "Notional" inputbox allows you to work out a bond's notional based on its market value and price.

The double arrow button near the "Maturity" inputbox allows you to "goal-seek" a hypothetical bond's maturity date, based on a given duration. It is useful when we use a bond as a proxy for an asset class index, such as during an SAA optimisation.