NN Investment Partners takes a detailed look at the treatment of convertible bonds under the new Solvency II regulatory regime for European insurers, from November 2015.

1. November 2015For Professional Use Only
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In-depth insights from NN Investment Partners
A detailed look at the treatment of convertible bonds under the new Solvency II regulatory regime for
European insurers.
Convertible bonds and solvency capital
constrained investments
• Solvency efficiency of NN Investment Partners’ convertible portfolio exceeds that of composite portfolios of similar exposure to
equities and bond components.
• The forthcoming implementation of Solvency II for insurance companies in Europe is likely to increase the attention of insurers for
convertibles as an efficient asset allocation tool.
• We expect an incremental increase in demand for convertible bonds investments from institutional investors.

2. November 2015FocusPoint
2
Convertible bonds and solvency
constrained investments
Solvency Capital Requirements (SCRs) relating to the new
Solvency II regulatory regime for European insurers are due
to be implemented in January 2016. Insurance companies are
already making preparations and adjustments for the new
framework. Most of them satisfy the SCRs by a comfortable
margin. The Spring 2013 survey by the European Insurance and
Occupational Pensions Authority (EIOPA) shows that the median
solvency ratio at the end of 2012 was 222%, a sharp improvement
from the 186% observed in 2011. Declining yields and a rise
in equities were the main contributors to this improvement.
Still, we believe there is a high level of disparity among companies
and the margin over solvency requirements is becoming a
measure of companies’ financial strength.
One principle of Solvency II is to assign capital requirements to
risky assets and to encourage companies to look thoroughly at
their investments in the light of the Solvency II risk assessment
philosophy. The sharp decline in yields of government and high-
grade bonds has mitigated the future expected returns of these
supposedly safer investments. This decline in expected return
carries a higher perception of their risk.
Convertible bonds are bond investments and hold similar risk
characteristics, but their expected returns are linked to underlying
equity returns and are therefore comparable to equities in some
respects. The purpose of this document is to analyse the Solvency
II treatment of these instruments and to determine whether they
can function as efficient investments in the Insurance Companies’
investment toolkit within the SCR context.
NN Investment Partners manages a convertible bond fund and
faces growing demand from the insurance community to provide
an estimate of SCR linked to their investment in such vehicles.
NN IP provides a “look-through” into individual securities held in
the fund, a prerequisite for investors to be able to assess their
aggregate SCR. In addition, owing to the complex nature of
the instruments, NN IP proposes a model to calculate the
SCR components at the security level and assess the aggregate
SCR market risk measure (SCR Market) of the fund. This model is
consistent with the current research on the Solvency II principles.
Details on the assumptions and methodology used to assess
SCRs are provided in the appendix of this document.
SCR Assessment of NN (L) Global Convertible Opportunities
The NN (L) Global Convertible Opportunities has an aggregate
SCR Market of 18.3% for sensitivity to underlying equities of 44%.
This provides a ratio of SCR to equity sensitivity of 41%.
The NN (L) Global Convertible Opportunities portfolio has not
been designed to maximize solvency parameters, but seeks to
deliver strong risk-adjusted returns with investment in pure
convex global convertibles. The portfolio is actively managed and
its SCR characteristics and aggregate parameters change over
time. Since its inception, the fund has delivered returns compara-
ble to equities, with less than 50% of the equity market volatility.
All investments in the fund are currency hedged so there is no SCR
Foreign Exchange component except for the so-called dual cur-
rency convertibles, where the main listing of the underlying equity
is in a currency different from the bond currency. Table 1 shows
calculation results for the portfolio.
Figure 1: NN (L) Global Convertible Opportunities
(SCR Market vs Equity Sensitivity)
0%
5%
10%
15%
20%
25%
30%
35%
0% 20% 40% 60% 80% 100%
SCRMarket
Equity Sensitivity
Source: NN IP, December 2014
Convertible consideration in asset allocation process
We believe the outcome of this calculation is worth considering for
anybody investing under solvency constraints. We have been con-
sidering and assessing the SCRs of investments in other asset
classes and hypothetical alternate portfolios displaying similar
exposure to equities. The portfolios we considered are composite
portfolios with an equity component (44% to match the equity
sensitivity of NN (L) Global Convertible Opportunities) and bond
components with different maturities and ratings. The outcome of
this analysis is displayed on Table 2.
The outcome of the calculation is that our convertible portfolio
displays a SCR Market measure of 18.3%, lower than the would-be
SCR contribution of 44% equities in a portfolio. As a result, no
composite portfolio could match the solvency efficiency of the
observed convertible portfolio. Our considerations regarding such
a composite portfolio are as follows:
• This portfolio would not display the asymmetrical features one
could expect from a convertible portfolio.
• The volatility of this portfolio is expected to be 44% of the volatil-
ity of equities contained in the portfolio. This is the median obser-
vation of the volatility observed on mixed convertible portfolios.
• The expected return (“E”) of such a portfolio in the context of
low interest rates would be relatively easy to assess:
E (portfolio) = 44% * E (equities) + 56% * E (bond element)

3. November 2015
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Table 1: SCR calculation details for NN Global Convertible Opportunities Portfolio (December 2014)
Short Name Wgt Maturity Last Equity
Sensitivity
DBF
Pct
SCR
Rate
SCR
Credit
SCR
Equity
SCR
Fx
SCR
Market
SCR/
Eq. Sensi.
Grand City Properties 1.5% 2019 EUR 8.70% 24/02/2019 132,53 59.20% 18.50% 0.40% 3.90% 19.10% 0.00% 22.20% 37.50%
Jarden 1.5% 2019 USD 6.10% 15/06/2019 129,4 76.10% 29.80% 0.90% 3.70% 26.40% 0.00% 29.30% 38.50%
Marine Harvest 0.875% 2019 EUR 6.00% 6/5/2019 120,02 58.70% 25.00% 0.40% 4.60% 20.60% 12.90% 30.30% 51.70%
FXCM Inc 2.25% 2018 USD 5.60% 15/06/2018 104,85 50.30% 10.00% 1.40% 5.30% 15.00% 0.00% 19.30% 38.40%
Priceline Group 0.35% 2020 USD 5.20% 15/06/2020 111,13 47.90% 20.60% 2.70% 6.60% 17.10% 0.00% 22.60% 47.10%
Glencore Finance (Europe) 5% 2014 USD 4.80% 31/12/2014 100,04 0.00% 0.00% 0.00% 0.10% 0.00% 0.00% 0.10% 1671.30%
Huron Consulting Group 1.25% 2019 USD 4.60% 1/10/2019 104,97 51.80% 17.20% 2.00% 6.20% 16.80% 0.00% 21.90% 42.40%
Qiagen 0.375% 2019 USD 4.60% 19/03/2019 105,12 42.60% 15.40% 2.10% 6.60% 13.50% 0.00% 19.10% 44.90%
Sandisk 0.5% 2020 USD 3.90% 15/10/2020 122,38 64.50% 29.00% 1.90% 7.00% 23.70% 0.00% 29.40% 45.60%
UNITE JERSEY ISSUER LTD 2.5% 2018 GBP 3.70% 10/10/2018 106,75 46.00% 12.40% 1.70% 5.50% 12.90% 0.00% 17.50% 38.00%
Salesforce.com 0.25% 2018 USD 3.60% 1/4/2018 114,24 46.80% 18.40% 1.40% 5.20% 15.30% 0.00% 19.50% 41.80%
Illumina 0% 2019 USD 3.50% 15/06/2019 111,32 37.30% 19.60% 2.50% 6.90% 14.20% 0.00% 20.00% 53.70%
LINTA/HSN 1% 2016 USD 3.50% 5/10/2016 110,97 50.90% 11.20% 0.40% 6.10% 10.40% 0.00% 15.50% 30.50%
Starwood Property Trust 4% 2019 USD 3.50% 15/01/2019 109,1 92.40% 10.60% 0.80% 3.50% 12.50% 0.00% 15.30% 16.60%
Fresenius 0% 2019 EUR 3.50% 24/09/2019 112 40.10% 16.30% 0.70% 13.80% 13.90% 0.00% 25.90% 64.70%
Fresenius Medical 1.125% 2020 EUR 3.40% 31/01/2020 108,89 35.80% 12.10% 0.80% 10.30% 11.30% 0.00% 20.30% 56.70%
Prospect Capital Corp 5.375% 2017 USD 3.10% 15/10/2017 98 11.80% 0.10% 1.60% 5.60% 2.40% 0.00% 7.70% 65.30%
Premier Oil Finance 2.5% 2018 (Exch) USD 2.90% 27/07/2018 90,22 10.20% -0.10% 2.50% 9.10% 2.90% 2.00% 12.50% 122.30%
Nihon Unisys 0% 2016 JPY 2.80% 20/06/2016 108,01 40.90% 8.30% 0.10% 2.70% 9.30% 0.00% 11.40% 28.00%
Asics 0% 2019 JPY 2.60% 1/3/2019 123,48 58.20% 21.30% 0.30% 5.20% 19.20% 0.00% 23.30% 40.10%
DWNI 0.5% 2020 EUR 2.30% 22/11/2018 120,34 52.70% 18.70% 0.40% 5.20% 16.70% 0.00% 20.90% 39.60%
Orpea SA 1.75%2020 EUR 1.80% 1/1/2020 60,94 59.70% 25.30% 0.50% 4.90% 22.30% 0.00% 26.20% 43.90%
Indra Sistemas SA 1.75% 2018 EUR 1.70% 17/10/2018 89,36 18.60% -0.40% 0.60% 9.00% 4.40% 0.00% 12.60% 67.90%
Citrix Systems 0.5% 2019 USD 1.60% 15/04/2019 104,63 32.90% 11.80% 2.60% 7.30% 10.50% 0.00% 16.90% 51.40%
Aggregate Parameters 93.20% 44.30% 14.60% 1.10% 5.30% 13.70% 0.80% 18.30% 41%
Source: NN IP
Table 2: SCR calculation estimates alternative portfolios (December 2014)
Portfolio Equity
Sensitivity
Annualized Expected
Return (3 Year Horizon)
SCR
Market
SCR
Rate
SCR
Credit
SCR
Equity
SCR
FX
100% ING IM Convertible Portfolio 44% Convex Equity Returns 18,30% 1,10% 5,30% 13,70% 0,80%
(60-70% Upside, 30-40% Downside)
Asset Class Portfolios
100% OECD Equities 100% 100% Equities 46.50% 0.00% 0.00% 46.50% 0.00%
100% BBG Sovereign* 0% 0.92% 3.30% 3.30% 0.00% 0.00% 0.00%
100% BBG Global IG* 0% 2.22% 9.90% 4.20% 9.00% 0.00% 0.00%
100% BBG Global High Yield* 0% 6.42% 25.40% 4.50% 25.00% 0.00% 0.00%
CB Equity Exposure Portfolios
44% Equities + 56% BBG Global Sovereign 44% 44% Equities + 0.5% 20.50% 1.90% 0.00% 20.50% 0.00%
44% Equities + 56% BBG IG 44% 44% Equities + 1.2% 24.60% 2.40% 5.00% 20.50% 0.00%
44% Equities+ 56% BBG Global HY 44% 44% Equities + 3.6% 32.40% 2.50% 14.00% 20.50% 0.00%
* ING IM Estimates, December 2014, Indices : BCOR Index, BGSV Index, BHYC Index
Source: NN IP

4. November 2015FocusPoint
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With current yields and spreads, an optimistic estimate of the
expected annualized return of this portfolio is:
44% * E (Equities) + 50 to 360 basis points (bps), depending on
which bond index is selected (assuming no default).
On the other hand, owing to the asymmetrical features of convert-
ibles and based on a combination of theoretical and empirical evi-
dence of the returns of this asset class, we believe the expected
return of the convertible investments depends on whether under-
lying equities rise or decline.
• Rising equity markets : E (convertibles ) = 60% to 70% of equity
returns
• Declining equity markets : E (convertibles) = 30% to 40% of
equity returns
• Long term observed returns match equity returns.
We can conclude that the convertible portfolio is likely to have
stronger expected returns and a better return profile than the com-
posite portfolios consuming more solvency capital. Therefore, under
SCR constraints, allocation to convertibles may be an efficient way
to minimize capital requirement and maximize expected returns.
The composite portfolios contain an intrinsic duration risk, whereas
the convertible portfolio historically displayed no or negative corre-
lation to interest rates. The use of equity options and derivatives
may lead to other solvency efficient portfolios with comparable
exposure to equities and asymmetrical return features.
The assessment of the expected returns of such portfolios lacks
empirical evidence and would probably be more difficult.
Solvency efficient portfolios of convertibles
We analysed the benefit of a non-solvency-optimized portfolio of
convertibles such as NN (L) Global Convertible Opportunities. We
believe that the efficiency of convertible investments with regard
to SCR may be greatly improved by applying a few considerations
to convertible selection and portfolio construction:
• Discarding cross-currency convertibles, which would likely
improve the ratios without statistically harming the expected
returns;
• Avoiding severely penalized high-yield rated bonds;
• Focusing the portfolio on optimal 30%-50% equity sensitive
convertible with optimal convexity.
By applying these simple rules, we believe it is possible to bring the
SCR Market of an efficient convertible portfolio to 15% or less,
with a similar 40% equity exposure. Adding constraints may alter
the expected return of the portfolio, but we do not expect the
alteration would be material. Such a portfolio is likely to perform
attractively versus a composite portfolio of equity and bonds with
regard to the solvency efficiency.
Drivers of SCR efficiency in convertibles
SCR rules applied to convertibles are quite stringent: the SCR of
the convertible portfolio as displayed in Table 1 (18.3%) is higher
than the aggregate distance to the bond floor of the convertible
portfolio (i.e. the equity risk). This means that under extreme sce-
narios considered under Solvency II, convertibles lose their equity
component and suffer from a declining bond floor. But some ele-
ments specific to the convertible market play in its favour:
• The duration of the convertible universe is low, minimizing both
the impact of the SCR Rate and SCR Credit components;
• The rating profile of the global convertible market is such that a
large portion (60% 1
) of it is non-rated. The non-rated bonds are
favorably treated under Solvency II as compared to high yield;
• The convertible market is strongly biased towards OECD coun-
tries (85% 1
) of the universe and 100% of ACSG investments.
These OECD equity investments are penalized less than other
markets under Solvency II (currently 46.5% vs. 56.5% with the
systemic risk element at +7.5%).
The most obvious element that protects convertibles under sol-
vency calculation is the convexity arising from the optionality
inherent to convertibles. The current effect of the equity shock
(-46.5%) applied in the case of OECD convertible underlying is
reduced by the bond floor protection in the context of balanced
convertibles. This high level of equity shock of 46.5% reflects
the Solvency Systemic risk component resulting from the
appreciation of equity markets over the past three years.
A less obvious element is the fact that the convexity also plays a
role in reducing the impact of credit (and to some extent rate)
shocks as the convertible value is held by the equity parity.
Figure 3 shows the declining credit sensitivity as credit widens for
a given convertible. On this chart, the effect of the credit convex-
ity can be measured as the convertible feature reduces the impact
of the +440bps credit shock suggested by Solvency II rules for this
2-year BB rated convertible. The so-called systemic risk adjust-
ment of the standard Solvency formula favours convertibles.
Solvency II rules provide a provision in cases where equity mar-
kets have risen which increases the amount of SCR Equity. Owing
again to the convex feature of convertibles, the marginal impact
of this increase favours convertibles when compared to a
non-convex equity holding as in a composite portfolio. Composite
portfolios of equities and credit that in theory could provide equiv-
alent returns to convertibles – a theory we do not support – can-
not benefit from this convexity and therefore are structurally less
SCR efficient.
Impact on future convertible bond demand
We expect that the forthcoming implementation of Solvency II for
insurance companies in Europe will increase the attention of these
investors for convertibles as an efficient asset allocation tool. So
far, the convertibles investor market has been dominated by pri-
vate banks. We expect incremental demand for convertible bonds
investments from institutional investors.
1
Source: UBS October 2013

5. November 2015
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Figure 2: LINTA/HSN 1% 2016 SCR Equity Calculation
Initial CB
Price, 110.01
CB Price
SCR Eq
Shock, 98.97
CB Price
SCR Shock
Linear, 88.11
70
80
90
100
110
120
130
0 10 20 30 40 50 60 70 80
Underlying Price
CB Price Shock CB Price (Linear, no convexity) SCR Equity Shock: (-46,5%)
Source: NN IP/Bloomberg, December 2014
IORP and pension fund use of convertibles
Although not subject to the full Solvency II framework, pension
funds across Europe will see the implementation of some form of
harmonised capital adequacy principles in order to assess their
asset/liability matching.
Currently, each country uses its own principles to assess the
capital requirements of investments. These vary greatly across
countries. As an example, the Netherlands accounts convertibles
as equity investments, leading to the rare use of the asset class by
Dutch pension funds. We believe that a more unified set of rules
with drawdown risk consideration will favour their use of asym-
metrical return investments such as convertibles in the future and
contribute to a greater demand for the asset class as well.
Figure 3: LINTA/HSN 1% 2016 SCR Credit Calculation
Initial CB
Price, 110.01
CB Price
Credit Shock,
103.09
CB Price
SCR Shock Linear,
102.40
95
97
99
101
103
105
107
109
111
113
0 100 200 300 400 500 600 700 800
Credit Spread
CB Price Shock CB Price (Linear, no convexity) SCR Credit Shock: (+450.0Bps)
Source: NN IP/Bloomberg, December 2014

6. November 2015FocusPoint
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Appendix
NN IP Convertible SCR Calculation Methodology
(Table Source: Technical Specifications for the Solvency II
valuation and Solvency Capital Requirements calculations,
EIOPA-DOC-12/362, 18 October 2012)
Solvency II is a major conceptual shift in insurance accounting
for risk. A direct link is created between portfolio structure and
capital requirement. The capital requirement (cost) is largely
determined by the nature of assets held in the portfolio.
A key measure is the SCR Market and results from the ex-ante
calculation of the risk of loss in value of the investment portfolio
for extreme variations of key market parameters. The directive
implies that the amount of equity corresponds to the Value-at-
Risk, for a probability of 99.5 and a time horizon of one year. In
other words, the SCR is the capital required to ensure that the
insurance company will be able to sustain market loss 199 times
in 200 cases. The equity amount required could be calculated
by the standard formula, given by the directive, or by an internal
model-based approach.
In this document, we focus on the standard formula, and still
adapt the calculations to the context of convertible bonds. Indeed,
the treatment of convertible bonds has not been fully clarified so
far under Solvency II. Yet, given the precise elements provided at
this stage for accounting of individual risks, academics and con-
sultants have provided insights into the likely acceptable treat-
ment of Solvency II when it comes to accounting for SCR for
Convertible Bond investment.
The following parameters are relevant in the context of convertible
bond investments: Interest Rate, Credit Spreads, Equity and FX.
NN IP approach to SCR module calculation for Convertible
bond investments
In most cases, insurance companies allocate investments to con-
vertible bonds through investment in funds. SCR calculation looks
through to the individual fund investments. Our approach to SCR
assessment is to apply sequentially the Solvency II one-year hori-
zon proposed market shocks to all parameters driving the value of
a convertible bond. Then, these risks are aggregated using the
Solvency II extreme correlation matrixes in order to estimate the
aggregate SCR of the portfolio.
The Solvency II risk modules pertaining to convertible bond invest-
ments are the following:
SCR Rate (Interest Rate Risk): Owing to the bond nature of the
convertible bonds, this upward shift risk is relevant. Solvency II
suggests applying predefined interest rate shocks along the yield
curve to measure this risk (see Table 3).
Table 3: SCR Interest Rate shock to prevailing yield curve
1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
70% 70% 64% 59% 55% 52% 49% 47% 44% 42%
11Y 12Y 13Y 14Y 15Y 16Y 17Y 18Y 19Y 20Y
39% 37% 35% 34% 33% 31% 30% 29% 27% 26%
21Y 22Y 23Y 24Y 25Y 26Y 27Y 28Y 29Y 30Y
25% 25% 25% 25% 25% 25% 25% 25% 25% 25%
SCR Credit (Credit Risk): Convertible bonds form an asset class
spreading across the full range of the credit spectrum: investment
grade, high yield and non-rated. The credit module of Solvency II
CSR calculation suggests the application predefined credit
spread shocks along the yield curve to measure this risk
For each individual convertible bond, a valuation is to be per-
formed assuming a credit shock on the convertible bond issuer.
The magnitude of the credit shock will be dependent on the credit
rating of the issuer, as shown in Table 4.
Table 4: SCR Credit Spread shock to prevailing credit
spread
Years AAA AA A BBB BB B CCC NR
1 0.90% 1.10% 1.40% 2.50% 4.50% 7.50% 7.50% 3.00%
2 0.90% 1.09% 1.39% 2.47% 4.40% 7.24% 7.24% 2.96%
3 0.89% 1.09% 1.38% 2.44% 4.31% 7.00% 7.00% 2.91%
4 0.89% 1.08% 1.37% 2.41% 4.22% 6.78% 6.78% 2.87%
5 0.88% 1.08% 1.36% 2.38% 4.14% 6.58% 6.58% 2.83%
6 0.82% 0.99% 1.24% 2.21% 3.79% 5.98% 5.98% 2.60%
7 0.78% 0.93% 1.16% 2.08% 3.53% 5.54% 5.54% 2.44%
8 0.74% 0.88% 1.09% 1.98% 3.34% 5.21% 5.21% 2.31%
9 0.71% 0.84% 1.04% 1.90% 3.18% 4.94% 4.94% 2.21%
10 0.69% 0.81% 1.00% 1.84% 3.05% 4.71% 4.71% 2.12%
11 0.67% 0.78% 0.95% 1.75% 2.89% 4.31% 4.31% 2.02%
12 0.66% 0.75% 0.91% 1.67% 2.76% 3.97% 3.97% 1.93%
13 0.64% 0.73% 0.88% 1.61% 2.65% 3.68% 3.68% 1.85%
14 0.63% 0.71% 0.84% 1.55% 2.55% 3.44% 3.44% 1.78%
15 0.62% 0.69% 0.82% 1.50% 2.46% 3.23% 3.23% 1.72%
16 0.61% 0.68% 0.79% 1.45% 2.33% 3.04% 3.04% 1.67%
17 0.60% 0.66% 0.77% 1.42% 2.21% 2.88% 2.88% 1.62%
18 0.59% 0.65% 0.76% 1.38% 2.11% 2.73% 2.73% 1.58%
19 0.58% 0.64% 0.74% 1.35% 2.01% 2.60% 2.60% 1.55%
20 0.57% 0.63% 0.72% 1.32% 1.93% 2.49% 2.49% 1.51%
21 0.57% 0.62% 0.71% 1.28% 1.85% 2.38% 2.38% 1.46%
22 0.56% 0.61% 0.70% 1.23% 1.78% 2.29% 2.29% 1.41%
23 0.56% 0.61% 0.68% 1.20% 1.72% 2.20% 2.20% 1.36%
24 0.55% 0.60% 0.67% 1.16% 1.66% 2.12% 2.12% 1.32%
25 0.55% 0.59% 0.66% 1.13% 1.61% 2.05% 2.05% 1.28%

7. November 2015
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SCR Equity (Equity Risk): Convertible bonds are sensitive to
their underlying equities. Therefore, we must estimate the equity
component of the CSR for each convertible bond.
Solvency II defines two types of risky equities. Type 1 relates to
equities whose main listing is in a OECD country. Type 2 refers to
non-listed equities (usually not applicable for convertible bond
underlyings) and equities whose main listing is in a non-OECD
country. Standard equity shocks to be applied to the underlying
equity are listed in Table 5.
Table 5: Equity Shocks in Solvency II
Systemic Risk Level* 7,5%
Equity Type Basic Shock% Current Shock
Type I (OECD) 39,0% 46,5%
Type II (non OECD) 49,0% 56,5%
* Systematic Risk adjustment as of Q4 2014
Solvency II directives provide for an adjustment to the shock level
to take into account the relative value of the equity market during
the past three years. The shock levels will be adjusted for the rela-
tive historic market level. Currently, we assume the adjustment
level to be at +7.5%. This leads to current applicable shocks of
46.5% and 56.5% respectively for Type 1 and Type 2 shocks.
SCR Foreign Exchange (SCR FX): We assume that the convertible
bonds are managed in a fund, and hedged for currency risk into
euros for the investment. Therefore, we can discard the FX CSR
component for all single currency convertible bonds.
Some convertible bonds are so-called dual-currency bonds. The
currency of the investment (bond) is different from the currency of
the underlying stock. In such cases the value of the convertible
bond may suffer a drawdown resulting from a drop in the
exchange property of the convertible bond due to a drop in the
value of the underlying stock currency.
For such convertibles, we apply a shock on the FX rate for the
25% required in the Solvency Standard formula. This leads to the
calculation of the SCR FX Component.
Concentration (SCR Concentration): Convertibles are a small
asset class compared to other investments, and we therefore con-
sider that investors subject to Solvency II (namely insurers) will
only hold a small portion of their assets in convertibles.
We then consider that investors will reach the concentration
thresholds owing to their convertible holdings. We therefore do
not consider the CSR Concentration module as relevant.
Aggregate SCR Calculation (SCR Market): We aggregate inde-
pendent SCR modules in order to assess the aggregate SCR of
the instrument. Solvency II proposes extreme correlation levels as
defined in Table 6 in order to estimate the total SCR.
Table 6: Covariance Matrix for SCR Risk aggregation
Rate Credit Equity FX
Rate 1.00 - - 0.25
Credit - 1.00 0.75 0.25
Equity - 0.75 1.00 0.25
FX 0.25 0.25 0.25 1.00
Once the vector of independent risk SCR modules is calculated
(SCR Rate, SCR Credit, SCR Equity, SCR FX), we can apply the
matrix calculation.

8. November 2015FocusPoint
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passed to any person at any time without our prior written consent. Any claims
arising out of or in connection with the terms and conditions of this disclaimer are
governed by Dutch law.
NN (L) Global Convertible Opportunities is a subfund of NN (L), established in
Luxembourg. NN (L) is duly authorised by the Commission de Surveillance du
Secteur Financier (CSSF) in Luxembourg. Both funds are registered with the CSSF.
For more detailed information about the investment fund we refer to the prospectus
and the corresponding supplements. In relation to the investment fund mentioned in
this document a Key Investor Information Document (KIID) has been published con-
taining all necessary information about the product, the costs and the risks which
may occur. Do not take unnecessary risk. Read the prospectus and the KIID before
investing. Investments are accompanied by risks. The value of your investments
depends in part upon developments on the financial markets. In addition, each fund
has its own specific risks. See the prospectus for fund-specific costs and risks. The
prospectus, supplement and the Key Investor Information Document are available
on the following website: www.nnip.com. This document is not directed at, and
must not be acted upon by citizens of the United States (US) and is otherwise only
directed at persons residing in jurisdictions where the relevant share classes/(sub)
funds are authorised for distribution or where no such authorisation is required.