EIOPA Clarifies Repo Bonds Count but Derivatives Excluded in CSSR for Volatility Adjustment

Key Takeaways

• EIOPA's final Q&A (ID 3567) confirms that bonds on the balance sheet but lent out through repurchase or securities lending transactions must be included in the CSSR numerator for the revised volatility adjustment.
• Derivative bond exposures, such as forward purchases, are excluded.
• Insurers should align their CSSR methodology and data processes with this interpretation before the January 2027 implementation date.

Deep Dive

EIOPA's final Q&A (ID 3567) confirms that bonds on the balance sheet but lent out through repurchase or securities lending transactions must be included in the CSSR numerator for the revised volatility adjustment. Derivative bond exposures, such as forward purchases, are excluded. Insurers should align their CSSR methodology and data processes with this interpretation before the January 2027 implementation date.

First, bonds subject to securities lending, repurchase agreements, and similar arrangements must be included in the numerator if they remain recognized on the insurer's balance sheet. The duration of those bonds therefore counts even when the bonds are temporarily transferred. Second, derivatives must not be included. This means bond forwards and other synthetic bond exposures do not add to the numerator, because the article refers to investments in bonds, loans and securitisations and does not extend to derivative exposures. The answer also implies that balance sheet recognition is the test. Bonds that have been derecognized, for example under certain repo structures, would fall outside the numerator.

The question was submitted on 12 May 2026 and the answer was published with final status in September 2026. The amended framework applies from January 2027, which leaves a short window to finalize calculation methodologies, systems changes, and governance sign-off for the first reporting and volatility adjustment calculations.

Compliance, actuarial, and risk teams should:
- Review the CSSR calculation specification to confirm that repo and securities lending positions recognized on the balance sheet are included.
- Confirm that derivative-based bond exposures are excluded.
- Check accounting treatment of repo and lending transactions to verify recognition and derecognition assumptions.
- Update data feeds, controls, and documentation, including model change records and policies.
- Assess whether the calculation reflects the asset-liability picture the firm expects, and discuss any material effects with the supervisor.

Misclassifying these items could misstate the CSSR and therefore the volatility adjustment, which in turn affects technical provisions, own funds, and the Solvency Capital Requirement ratio. Firms that use forward bond purchases or repo-heavy strategies may see a CSSR that does not capture their full economic spread exposure, which could affect volatility adjustment outcomes and ALM decisions. Inconsistent treatment across the sector or within a group could also draw supervisory challenge and reporting errors.

Source: European Insurance and Occupational Pensions Authority