1.The capital requirement for subsidence risk shall be equal to the following:
\mathrm{SCR}_{\mathrm{subsidence}} = \sqrt{\left(\sum_{(r,s)} \mathrm{CorrS}_{(r,s)} * \mathrm{SCR}_{(\mathrm{subsidence},r)} * \mathrm{SCR}_{(\mathrm{subsidence},s)}\right) + \mathrm{SCR}_{(\mathrm{subsidence},\text{other})}^2}
where:
the sum includes all possible combinations (r,s) of the regions set out in Annex VIIIa;
CorrS(r,s) denotes the correlation coefficient for subsidence risk for region r and region s as set out in Annex VIIIa;
SCR(subsidence,r) and SCR(subsidence,s) denote the capital requirements for subsidence risk in region r and s respectively;
SCR(subsidence, other) denotes the capital requirement for subsidence risk in regions other than those set out in Annex XIII.
2.For all regions set out in Annex VIIIa, the capital requirement for subsidence risk in a particular region r shall be equal to the loss in basic own funds of insurance and reinsurance undertakings that would result from an instantaneous loss of an amount that, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, is equal to the following:
L_{(\mathrm{subsidence}, r)} = \sqrt{\Sigma_{(i, j)} \mathrm{Corr}_{(\mathrm{subsidence}, r, i, j)} * \mathrm{WSI}_{(\mathrm{subsidence}, r, i)} * \mathrm{WSI}_{(\mathrm{subsidence}, r, j)}}
where:
the sum includes all possible combinations of risk zones (i,j) of region r set out in Annex IX;
Corr(subsidence,r,i,j) denotes the correlation coefficient for subsidence risk in risk zones i and j of region r set out in Annex XXVI;
WSI(subsidence,r,i) and WSI(subsidence,r,j) denote the weighted sums insured for subsidence risk in risk zones i and j of region r set out in Annex IX.
3.For all regions set out in Annex VIIIa and all risk zones of those regions set out in Annex IX, the weighted sum insured for subsidence risk in a particular risk zone i of a particular region r shall be equal to the following:
WSI(subsidence,i) = Q(subsidence,r) · W(subsidence,r,i) · SI(subsidence,r,i)
where:
W(subsidence,r,i) denotes the risk weight for subsidence risk in risk zone i of region r set out in Annex X;
SI(subsidence,r,i) denotes the sum insured of the insurance or reinsurance undertaking for lines of business 7 and 19 as set out in Annex I in relation to contracts that cover subsidence risk of residential buildings in subsidence zone i of region r;
Q(subsidence,r) denotes the subsidence risk factor for region r as set out in Annex VIIIa.
Where the amount determined for a particular risk zone in accordance with the first subparagraph exceeds an amount (referred to in this subparagraph as ‘the lower amount’) equal to the sum of the potential losses, without deduction of the amounts recoverable from reinsurance contracts and special purpose vehicles, that the insurance or reinsurance undertaking could suffer for subsidence risk in that risk zone, taking into account the terms and conditions of its specific policies, including any contractual payment limits, the insurance or reinsurance undertaking may, as an alternative calculation, determine the weighted sum insured for subsidence risk in that risk zone as the lower amount.