Health Medical Expense Disability-Morbidity Risk Simplification

Overview

This calculator implements the simplified capital requirement for Health Medical Expense Disability-Morbidity Risk within the Solvency II standard formula.^[1] It applies the Article 99 medical expense disability-morbidity approximation.

Input Terms

• Annual Medical Expenses Last Year: The annual medical expenses incurred during the last 12 months for the relevant medical expense obligations.^[1]
• Modified Duration of Medical Expense Cash Flows: The modified duration of medical expense cash flows included in the best estimate.^[1]
• Average Medical Inflation Rate in Best Estimate: The average medical inflation rate assumed in the best-estimate projection.^[1]

Technical Rationale

Article 99 approximates the medical expense disability-morbidity amount using annual medical expenses, medical inflation, and the duration of expense cash flows.^[1] The simplification is a proportional substitute for a full stressed valuation only where the Article 99 conditions are supportable; broader Health Risk aggregation remains a separate capital requirement step.

Important Notes

• Applicability: The simplification should only be used where the medical expense base and inflation assumption are representative of the relevant health obligations.^[1]
• Gross vs. Net SCR: This simplification estimates the standalone Health Medical Expense Disability-Morbidity Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in the higher Health Risk aggregation path, then within BSCR, and after the top-level LAC TP and LAC DT adjustments.
• Regulatory deviation: Material deviation from the standard-formula assumptions or from the conditions supporting this simplification may support a capital add-on or a move toward a fuller or internal-model approach where justified.^[2]
• Reporting: The simplified result is intended to support the corresponding standard-formula component for the S.25.01.01 standard-formula reporting view, not to replace the full article-based result where the simplification is not justified.^[3]