Solvency II Standard Formula SCR: Life
Underwriting Risk Module – Lapse Risk Sub-module
[this page | pdf | references | back links]
Whilst some shortcomings were identified in the approach
proposed in QIS4 in the subsequent consultation process, no practical way of
improving on the basic approach proposed there was identified. The approach
finally adopted in the Solvency II Delegated
Act remains based on the maximum of three stresses:
-
A permanent increase of lapse rates
-
A permanent decrease of lapse rates; and
-
A mass lapse event
The stresses are:
Lapse down
Reduction of 50% in option exercise rates (suitably defined)
for all policies for which exercise of option would increase technical
provisions without the risk margin. Shock not to change the rate to which the
reduction is apply to by more than 20 percentage points in absolute terms.
Lapse up
Increase of 50% in assumed option take-up rates in all
future years for which exercise of option would increase technical provisions
without the risk margin. The shocked rate should not exceed 100%.
Mass Lapse
Discontinuance of 70% of non-retail policies (suitably
defined) and 40% of retail policies (suitably defined) for which discontinuance
would result in an increase technical provisions without the risk margin. The
corresponding percentages were different in earlier iterations of the standard
formula.
Version dated 7 December 2015
NAVIGATION LINKS
Contents | Prev | Next