1.Where Articles 88 and 89 are complied with, captive insurance or captive reinsurance undertakings may calculate the capital requirement for interest rate risk referred to in Article 165 as follows:
(a)the sum, for each currency, of the capital requirements for the risk of an increase in the term structure of interest rates as set out in paragraph 2 of this Article;
(b)the sum, for each currency, of the capital requirements for the risk of a decrease in the term structure of interest rates as set out in paragraph 3 of this Article.
2.For the purposes of point (a) of paragraph 1 of this Article, the capital requirement for the risk of an increase in the term structure of interest rates for a given currency shall be equal to the following:
\mathrm{IR}_{\mathrm{up}} = \sum_{i} \mathrm{MVAL}_{i} \cdot \mathrm{dur}_{i} \cdot \mathrm{rate}_{i} \cdot \mathrm{stress}_{(i,\mathrm{up})} - \sum_{\mathrm{lob}} \mathrm{BE}_{\mathrm{lob}} \cdot \mathrm{dur}_{\mathrm{lob}} \cdot \mathrm{rate}_{\mathrm{lob}} \cdot \mathrm{stress}_{(\mathrm{lob},\mathrm{up})}
where:
(a)the first sum covers all maturity intervals i set out in paragraph 4 of this Article;
(b)MVALi denotes the value in accordance with Article 75 of Directive 2009/138/EC of assets less liabilities other than technical provisions for maturity interval i;
(c)duri denotes the simplified duration of maturity interval i;
(d)ratei denotes the relevant risk-free rate for the simplified duration of maturity interval i;
(e)stress(i,up) denotes the relative upward stress of interest rate for simplified duration of maturity interval i;
(f)the second sum covers all lines of business set out in Annex I of this Regulation;
(g)BElob denotes the best estimate for line of business lob;
(h)durlob denotes the modified duration of the best estimate in line of business lob;
(i)ratelob denotes the relevant risk-free rate for modified duration in line of business lob;
(j)stress(lob,up) denotes the relative upward stress of interest rate for the modified duration durlob.
3.For the purposes of point (b) of paragraph 1 of this Article, the capital requirement for the risk of a decrease in the term structure of interest rates for a given currency shall be equal to the following:
\mathrm{IR}_{\mathrm{down}} = \sum_{\mathrm{i}} \mathrm{MVAL}_{\mathrm{i}} \cdot \mathrm{dur}_{\mathrm{i}} \cdot \mathrm{rate}_{\mathrm{i}} \cdot \mathrm{stress}_{(\mathrm{i},\mathrm{down})} - \sum_{\mathrm{lob}} \mathrm{BE}_{\mathrm{lob}} \cdot \mathrm{dur}_{\mathrm{lob}} \cdot \mathrm{rate}_{\mathrm{lob}} \cdot \mathrm{stress}_{(\mathrm{lob},\mathrm{down})}
where:
(a)the first sum covers all maturity intervals i set out in paragraph 4;
(b)MVALi denotes the value in accordance with Article 75 of Directive 2009/138/EC of assets less liabilities other than technical provisions for maturity interval i;
(c)duri denotes the simplified duration of maturity interval i;
(d)ratei denotes the relevant risk-free rate for the simplified duration of maturity interval i;
(e)stress(i,down) denotes the relative downward stress of interest rate for simplified duration of maturity interval i;
(f)the second sum covers all lines of business set out in Annex I of this Regulation;
(g)BElob denotes the best estimate for line of business lob;
(h)durlob denotes the modified duration of the best estimate in line of business lob;
(i)ratelob denotes the relevant risk-free rate for modified duration in line of business lob;
(j)stress(lob, down) denote the relative downward stress of interest rate for modified duration durlob.
4.The maturity intervals i and the simplified duration dur idur_{i} referred to in points (a) and (c)of paragraph 2 and in point (a) and (c) of paragraph 3 shall be as follows:
(a)up to the maturity of one year, the simplified duration shall be 0.5 years;
(b)between maturities of 1 and 3 years, the simplified duration shall be 2 years;
(c)between maturities of 3 and 5 years, the simplified duration shall be 4 years;
(d)between maturities of 5 and 10 years, the simplified duration shall be 7 years;
(e)from the maturity of 10 years onwards, the simplified duration shall be 12 years.