EIOPA Clarifies Treatment of Repacks and Forward Bond Contracts in MVFI Under Solvency II LTG Rules

Key Takeaways

• EIOPA's final Q&A (ID 3528) states that derivatives, including forward bond contracts, should not be included in the market value of fixed-income assets (MVFI).
• Whether repacks are included depends on their contractual specifics.
• Insurers using long-term guarantee measures should review how they classify these exposures, because the classification affects the calculation.

Deep Dive

EIOPA's final Q&A (ID 3528) states that derivatives, including forward bond contracts, should not be included in the market value of fixed-income assets (MVFI). Whether repacks are included depends on their contractual specifics. Insurers using long-term guarantee measures should review how they classify these exposures, because the classification affects the calculation.

EIOPA's key positions are as follows. First, the underlying investments of collective investment undertakings and of investments packaged as funds should be looked through for MVFI. Second, the relevant provision refers to bonds, loans and securitizations. EIOPA notes that derivatives are a distinct balance sheet item and should not be included in MVFI. Third, forward bond contracts are generally derivatives and therefore are excluded. Fourth, repacks have no uniform treatment. Depending on their contractual terms, they may qualify as collective investment undertakings, in which case look-through applies, or they may have derivative characteristics, in which case they are excluded.

The Q&A states no deadlines or transition dates. It is a final Q&A, and as supervisory guidance it signals how national supervisors are expected to interpret the rules. The Q&A reference to Article 51a(2)(a) of Regulation 2015/35 differs from the Article 51b(2)(a) cited in the question, so teams should verify the correct provision citations against the consolidated legal text.

Compliance and actuarial teams should take these steps:
- Inventory repacks and forward bond positions, and document the contractual analysis supporting each classification (fund-like versus derivative-like).
- Update MVFI calculation methodologies, data lineage and internal policies to reflect the exclusion of derivatives.
- Check whether any short or synthetic exposures were previously netted or included, and quantify the effect of any changes.
- Make sure the judgments are governed, validated and available for supervisory review. Engage the national supervisor where classification is ambiguous.

The main risks are misclassification leading to an incorrect MVFI, which could affect LTG-related calculations and solvency reporting, and supervisory challenge where judgment is poorly documented. Because the repack treatment depends on contract terms, the risk is greatest for firms with complex structured holdings. The overall impact is likely moderate, and it is firm-specific.

Source: European Insurance and Occupational Pensions Authority