Life Lapse-Down Stress

Overview

Article 142 defines the permanent lapse-down stress for policyholder-behaviour risk where lower lapses are adverse.^[1]

Input Terms

• Current Lapse Rate: Representative pre-stress lapse rate for the portfolio slice being tested.^[1]

Technical Rationale

Article 142 also tests the opposite policyholder-behaviour direction because lower lapses can trap the undertaking in unprofitable guarantees, expense overruns, or adverse benefit terms.^[1] The limit on the decrease prevents the stressed rate from overstating persistence where the starting lapse rate is already high.

The displayed applied reduction is therefore the bounded Article 142 decrease rather than a raw proportional movement. The lapse-down direction remains separate because Article 142 requires the adverse policyholder-behaviour scenario to be identified after valuation-model loss measurement.

Important Notes

• This is a stress-specification page, not a basic-own-funds loss bridge.
• Final lapse risk uses the largest prepared loss across lapse-up, lapse-down, and mass-lapse scenarios.
• Valuation scope is limited to relevant policyholder options and portfolio slices where the lapse-down scenario is adverse; this page does not validate that scope.