Life Disability-Morbidity Risk Simplification | Actuably

Next Twelve Months Capital at Risk

€

Next Twelve Months Disability-Morbidity Rate

%

After Twelve Months Capital at Risk

€

After Twelve Months Disability-Morbidity Rate

%

Modified Duration of Disability Payments (n)

Next Twelve Months Expected Termination Rate

%

Best Estimate of Disability-Sensitive Obligations (BEdis)

€

CAR One Factor

CAR Two Factor

Termination Factor

Escalation Factor

Disability-Morbidity Risk Capital Requirement

€2 385 164

CAR One Factor

0.35

CAR Two Factor

0.25

Termination Factor

0.20

Escalation Factor

1.10

1Step 1

Disability-Morbidity Risk Capital Requirement

\textit{Disability-Morbidity Risk Capital Requirement} = \textit{CAR One Factor} \times \textit{Next Twelve Months Capital at Risk} \times \textit{Next Twelve Months Disability-Morbidity Rate} + \textit{CAR Two Factor} \times {\textit{Escalation Factor}}^{\frac{\textit{Modified Duration of Disability Payments (n)} - 3}{2}} \times \textit{Modified Duration of Disability Payments (n)} - 1 \times \textit{After Twelve Months Capital at Risk} \times \textit{After Twelve Months Disability-Morbidity Rate} + \textit{Termination Factor} \times {\textit{Escalation Factor}}^{\frac{\textit{Modified Duration of Disability Payments (n)} - 1}{2}} \times \textit{Next Twelve Months Expected Termination Rate} \times \textit{Modified Duration of Disability Payments (n)} \times \textit{Best Estimate of Disability-Sensitive Obligations (BEdis)}

\textit{Disability-Morbidity Risk Capital Requirement} = \textit{CAR One Factor} \times \textit{Next Twelve Months Capital at Risk} \times \textit{Next Twelve Months Disability-Morbidity Rate} + \textit{CAR Two Factor} \times {\textit{Escalation Factor}}^{\frac{\textit{Modified Duration of Disability Payments (n)} - 3}{2}} \times \textit{Modified Duration of Disability Payments (n)} - 1 \times \textit{After Twelve Months Capital at Risk} \times \textit{After Twelve Months Disability-Morbidity Rate} + \textit{Termination Factor} \times {\textit{Escalation Factor}}^{\frac{\textit{Modified Duration of Disability Payments (n)} - 1}{2}} \times \textit{Next Twelve Months Expected Termination Rate} \times \textit{Modified Duration of Disability Payments (n)} \times \textit{Best Estimate of Disability-Sensitive Obligations (BEdis)}

\begin{aligned}\textit{Disability-Morbidity Risk Capital Requirement} &= \textit{CAR One Factor} \times \textit{Next Twelve Months Capital at Risk} \times \textit{Next Twelve Months Disability-Morbidity Rate} + \textit{CAR Two Factor} \times {\textit{Escalation Factor}}^{\frac{\textit{Modified Duration of Disability Payments (n)} - 3}{2}} \times \textit{Modified Duration of Disability Payments (n)} \\ &\quad - 1 \times \textit{After Twelve Months Capital at Risk} \times \textit{After Twelve Months Disability-Morbidity Rate} \\ &\quad + \textit{Termination Factor} \times {\textit{Escalation Factor}}^{\frac{\textit{Modified Duration of Disability Payments (n)} - 1}{2}} \times \textit{Next Twelve Months Expected Termination Rate} \times \textit{Modified Duration of Disability Payments (n)} \times \textit{Best Estimate of Disability-Sensitive Obligations (BEdis)}\end{aligned}

Understand the Life Disability-Morbidity Risk Simplification

Overview

This calculator implements the simplified capital requirement for Life Disability-Morbidity Risk within the Solvency II standard formula.^[1] It uses prepared CAR1 and CAR2 inputs with the Article 93 parameters for disability rates, termination, and payment duration.

Input Terms

Capital at Risk During Next 12 Months (CAR1): The prepared total positive capital at risk exposed to disability-morbidity incidence during the next 12 months. Life Disability-Morbidity CAR1 / CAR2 Capital at Risk calculates one contract or prepared slice; this calculator does not calculate the portfolio sum.^[1]
Average Disability-Morbidity Rate During Next 12 Months (d1): The average disability-morbidity rate for the next 12 months.^[1]
Capital at Risk After 12 Months (CAR2): The prepared total positive capital at risk exposed to disability-morbidity incidence after the first 12 months. Life Disability-Morbidity CAR1 / CAR2 Capital at Risk can be used for one after-12-month contract or slice, but the total remains an input here.^[1]
Average Disability-Morbidity Rate in Following 12 Months (d2): The average disability-morbidity rate for the following 12-month period.^[1]
Modified Duration of Disability Payments (n): The modified duration of disability benefit payments included in the best estimate.^[1]
Expected Termination Rate During Next 12 Months (t): The expected termination rate for disability benefits during the next 12 months.^[1]
Best Estimate of Disability-Sensitive Obligations (BEdis): The best estimate of obligations exposed to disability-morbidity risk.^[1]

Technical Rationale

Article 93 approximates disability-morbidity capital using prepared CAR1 and CAR2, disability rates, expected termination, and duration-based factors.^[1] The result is the simplified disability-morbidity component before aggregation in Life Risk.

Important Notes

Applicability: The simplified formula is intended for portfolios where the Article 93 parameters reasonably represent the disability-morbidity exposure.^[1]
Gross vs. Net SCR: This simplification estimates the standalone Life Disability-Morbidity Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in Life Risk, 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]

Sources