Q&A

Question

When calculating the capital requirement for Mass Lapse risk should the per-policy expenses remain unchanged, resulting in the overall expenses falling proportionally? 

EIOPA answer

The capital requirement for mass lapse risk in accordance with Article 142(6) of Commission Delegated Regulation (EU) 2015/35 should reflect the adjustments after the mass lapse event that the insurer would have to make to the expense component of the cash flow projection in the best estimate calculation. Whether and by how much future expenses can be reduced due to the lower number of policies depends on company specifics like the proportion of fixed and variable costs. Using the assumption of constant per policy expense for determining the capital requirement for mass lapse risk may in many cases be too optimistic with respect to the possibility to reduce costs.