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Life Lapse Risk Simplification

Calculate the Lapse Risk Capital Requirement instantly.

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Lapse Risk Capital Requirement

€28 000 000

Simplified Lapse-Up Risk Amount

€28 000 000

Simplified Lapse-Down Risk Amount

€18 900 000

Grouped Mass-Lapse Loss

€4 500 000

Legal Factor

0.50

Lapse-Up Floor

67.0%

Lapse-Down Floor

40.0%

Mass-Lapse Discontinuance Rate

40.0%

1Step 1

Simplified Lapse-Up Risk Amount

Simplified Lapse-Up Risk Amount=Legal Factor×max⁡(Average Lapse Rate for Positive Surrender Strains (l up),Lapse-Up Floor)×Average Run-Off Period for Positive Surrender Strains (n up)×Sum of Positive Surrender Strains (S up)\textit{Simplified Lapse-Up Risk Amount} = \textit{Legal Factor} \times \max(\textit{Average Lapse Rate for Positive Surrender Strains (l up)}, \textit{Lapse-Up Floor}) \times \textit{Average Run-Off Period for Positive Surrender Strains (n up)} \times \textit{Sum of Positive Surrender Strains (S up)}
2Step 2

Simplified Lapse-Down Risk Amount

Simplified Lapse-Down Risk Amount=Legal Factor×max⁡(Average Lapse Rate for Negative Surrender Strains (l down),Lapse-Down Floor)×Average Run-Off Period for Negative Surrender Strains (n down)×Absolute Sum of Negative Surrender Strains (|S down|)\textit{Simplified Lapse-Down Risk Amount} = \textit{Legal Factor} \times \max(\textit{Average Lapse Rate for Negative Surrender Strains (l down)}, \textit{Lapse-Down Floor}) \times \textit{Average Run-Off Period for Negative Surrender Strains (n down)} \times \textit{Absolute Sum of Negative Surrender Strains (|S down|)}
3Step 3

Lapse Risk Capital Requirement

Lapse Risk Capital Requirement=max⁡(Simplified Lapse-Up Risk Amount,Simplified Lapse-Down Risk Amount,Grouped Mass-Lapse Loss)\textit{Lapse Risk Capital Requirement} = \max(\textit{Simplified Lapse-Up Risk Amount}, \textit{Simplified Lapse-Down Risk Amount}, \textit{Grouped Mass-Lapse Loss})

Understand the Life Lapse Risk Simplification

Overview

This calculator implements the simplified capital requirement for Life Lapse Risk within the Solvency II standard formula.[1] It combines Article 95 lapse-up and lapse-down approximations with the Article 95a grouped-policy mass-lapse simplification.

Input Terms

  • Average Lapse Rate for Positive Surrender Strains (l up): The average lapse rate for contracts with positive surrender strains used in the lapse-up approximation.[1]
  • Average Run-Off Period for Positive Surrender Strains (n up): The average run-off period for the positive-strain group.[1]
  • Sum of Positive Surrender Strains (S up): The sum of positive surrender strains used to determine the lapse-up stress amount.[1]
  • Average Lapse Rate for Negative Surrender Strains (l down): The average lapse rate for contracts with negative surrender strains used in the lapse-down approximation.[1]
  • Average Run-Off Period for Negative Surrender Strains (n down): The average run-off period for the negative-strain group.[1]
  • Absolute Sum of Negative Surrender Strains (|S down|): The absolute value of negative surrender strains used to determine the lapse-down stress amount.[1]
  • Prepared Grouped Mass-Lapse Loss: The grouped-policy mass-lapse loss prepared by applying the Article 142 mass-lapse stress within the undertaking's valuation model, using the Article 95a grouping permission where eligible.[2]

Technical Rationale

Article 95 provides simplified lapse-up and lapse-down formulas based on surrender strains, lapse rates, and run-off periods.[1] Article 95a permits grouped-policy calculation for lapse-up, lapse-down, and mass-lapse requirements where the grouping conditions are met.[2] This page keeps the published up/down formulas in the calculator and treats the grouped mass-lapse loss as a prepared valuation-model input instead of reconstructing basic own funds before and after the stress.

Important Notes

  • Scenario selection: The simplified lapse capital requirement is the largest of the simplified lapse-up, lapse-down, and grouped mass-lapse results.[1][2]
  • Model boundary: The prepared grouped mass-lapse loss should already reflect the full valuation impact, including technical provisions, assets, recoverables, tax effects, and any relevant management actions. This calculator does not validate or recalculate that model output.
  • Gross vs. Net SCR: This simplification estimates the standalone Life Lapse 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.[3]
  • 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.[4]

Sources

  1. Delegated Regulation (EU) 2015/35 - Art. 95 (Simplified calculation of the capital requirement for permanent changes in lapse rates) - EIOPA
  2. Delegated Regulation (EU) 2015/35 - Art. 95a (Simplified calculation of the capital requirement for risks in the life lapse risk sub-module) - EIOPA
  3. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  4. Commission Implementing Regulation (EU) 2023/894 - QRT S.25.01.01 (SCR standard formula) - EUR-Lex

Default values are illustrative sample inputs for navigation, training, and QA. Replace them with controlled data before using the result in capital analysis, governance, or reporting decisions.