Question ID: 3313
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Topic: Solvency Capital Requirement (SCR)
Article: Article 118(1)(a); 142(6)(a)(b) of the Delegated Regulation; Article 77(2) of Directive 2009/138/EC
Status: Rejected
Date of submission: 03 Apr 2025
Question
Question 2433 clarifies that the non-life lapse risk shall be based on "policies for which discontinuance would result in an increase of technical provisions" (directive text) "before the payments caused by the discontinuance are made" (Q&A clarification). With this clarification, discontinuance of any profitable contract will result in a (short term) increase in the provisions and are thus within scope of the Lapse risk calculation. Can you confirm that the Lapse risk should thus be equal or higher than 40% of the EPIFP per line of business in lines of business where any policy can be discontinued?
Background of the question
Many non-life companies report a very low {lapse risk} / EPIFP ratio. Some auditors are claiming that only policies with negative premium reserves (i.e. profitable contracts that are not pre-paid) are in scope of the lapse calculations.
EIOPA answer
This question has been rejected because the issue it deals with is already explained or addressed in the Delegated Regulation (EU) 2015/35. As to the assumption included in the question, namely that the non-life lapse risk SCR should be equal or higher than 40% of the EPIFP per line of business in lines of business where any policy can be discontinued, please see Articles 118 and 260(3) and (4) of the Delegated Regulation (EU) 2015/35, which clarifies that there is no one-to-one relationship since the granularity of the calculation of EPIFP is at homogeneous risk group level and the calculation of lapse risk at policy level. Moreover, Article 260(2) specifies the assumptions related to future premium in the calculation of EPIFP, which, depending on the characteristic of each policy, could result in a different consideration of future premiums compared to the calculation of the technical provisions and own funds under the non-life lapse risk stress prescribed by Article 118.