SCR Calculator User Manual

Button and Datafields for Verification

In Single Asset SCR panel, more MA-related data fields are added:

The various fundamental spread components - PD as a probability, PD in bps, Cost of Downgrade in bps and Long-Term Average Spread - are calibrated for every year up to the life of a bond; and Matching Adjustment is computed as Z-spread less the weighted average of fundamental spreads for all years of the bond's life.

Note that a button is added to the right-hand side of the 'fundamental spread' box. When the user clicks the button, it gives verification of the fundamental spread calculation, such as below:

The first paragraph means we check our own Fundamental Spread calculation each year (using the formula mentioned previously) against the FS values published by EIOPA or the PRA. They should match to within 0.5bps in any cases.

(If the user 'set' own FS component values, he/she need to ensure those values also match.)

The "Notch-level interpolation of FS Components" section only appears if there is notch-level interpolation going-on. For each paragraph, the data elements shown are:

• CQS1 and CQS2 the two Credit Quality Steps (i.e. ratings) used for interpolation.
• CQS the actual Credit Quality Step (i.e. rating) of the asset.
• LHS and RHS the scaling factors.
• PDprob 1 and PDprob 2 the two Probability of Defaults as probability percentages, for interpolation.
• PDprob the interpolated Probability of Default for the asset. Note that this quantity does not enter Fundamental Spread calculation.
• PD 1 and PD 2 the two Probability of Defaults in bps, for interpolation.
• PD the interpolated Probability of Default in bps for the asset, for use in Fundamental Spread calculation.
• CoD 1 and CoD 2 the two Costs of Downgrade in bps, for interpolation.
• CoD the interpolated Cost of Downgrade in bps for the asset, for use in Fundamental Spread calculation.
• LTAS 1 and LTAS 2 the two Long-Term Average Spreads in bps, for interpolation.
• LTAS the interpolated Long-Term Average Spread in bps for the asset, for use in Fundamental Spread calculation.

These data fields are also made available in the Portfolio SCR form as data columns for export, as will be explained in the next Chapter.