No, when applying the SF, an insurer may not take the risk-mitigating effect of NHG into account in determining the SCR for mortgage loans. The SCR for mortgage loans with NHG is therefore the same as the SCR for mortgage loans without NHG.
There are two reasons why an insurer cannot take the risk-mitigating effect of NHG into account.
- Firstly, under the Solvency II Regulation (2015/35/EU, the Regulation), guarantees may only be taken into account if they fully cover all types of regular payments the obligor is expected to make in respect of the claim (Article 215, under f, of the Regulation). NHG does not meet this requirement for the following three reasons:
- The amount paid out in case of default is at most the difference between the nominal value and the value of the collateral, which means that NHG does not cover all types of regular payments the obligor is expected to make in respect of the claim.
- The guaranteed sum decreases on an annuity basis.
- Effective from 2014, NHG mortgage loan providers must take into account an excess of 10%.
- Secondly, it follows from Article 215 of the Regulation that if the SCR is determined according to the SF, a guarantee can only be recognised if it is an explicitly documented obligation assumed by the guarantor. In the SCR provision on mortgage loans such explicitly documented obligation is lacking.