Simplified calculation of the capital requirement for permanent changes in lapse rates

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 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 67 %;

(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.

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 as follows:

Lapse down = 0,5 * l down * n down * S down

where:

(a) l down denotes the higher of the average lapse rate of the policies with negative surrender strains and 40 %;

(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.