Q&A

Question

In relation to question 1678 published 22-Nov-18 the EIOPA response suggests in the mass lapse component the expense component of the BEL should also be adjusted. In setting the expense correlation parameter to 0.5 the guidance recognises that it is set at this level to recognise that in certain events a revision to the future expenses is required. To further stress the expenses in the mass lapse event would therefore appear to be a double count. Please could it be clarified if the intention really is to adjust the expenses in the mass lapse stress which in itself would be quite subjective which may lead to less consistent and effective application of the legislation. 

EIOPA answer

This question has been rejected because the matter it refers to has been answered in Q&A 1678 , which remains valid. Using the assumption of constant per policy expense for determining the capital requirements for mass lapse risk may in many cases be too optimistic with respect to the possibility to reduce costs. Also, the reason behind the retained correlation factor depends on the legislator intention.