Simplified calculation of the capital requirement for SLT health lapse risk

Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for the risk of a permanent increase in lapse rates referred to in Article 159(1)(a) as follows:

Lapse up = 0,5 · l up · n up · S up

where:

(a) l up denotes the higher of the average lapse rate of the policies with positive surrender strains and 83 %;

(b) n up denotes the average period in years over which the policies with a positive surrender strains run off;

(c) S up denotes the sum of positive surrender strains.

2. Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for the risk of a permanent decrease in lapse rates referred to in 159(1)(b) as follows:

Lapse_down = 0,5 · l down · n down · S down

where:

(a) l down denotes the average lapse rate of the policies with negative surrender strains;

(b) n down denotes the average period in years over which the policies with a negative surrender strains runs off;

(c) S down denotes the sum of negative surrender strains.

3. The surrender strain of an insurance policy referred to in paragraphs (1) and (2) is the difference between the following:

(a) the amount currently payable by the insurance undertaking on discontinuance by the policy holder, net of any amounts recoverable from policy holders or intermediaries;

(b) the amount of technical provisions without the risk margin.