Non-Life Lapse Risk

Overview

This calculator implements the Non-Life Lapse Risk sub-module within the undertaking's non-life underwriting risk framework.^[1] The requirement is defined as the economic capital necessary to maintain solvency following a sudden, significant increase in the termination of insurance contracts.

Input Terms

• Lapse Rate: The projected frequency of contract cancellations or non-renewals.
• Lapse Shock: The instantaneous mass-cancellation of 40% of the insurance-contracts for which discontinuation would result in an increase in technical provisions.^[1]
• Surrender Value: The amount payable to the policyholder upon termination.

Technical Rationale

The Non-Life Lapse Risk capital requirement is calibrated to a 99.5% confidence level over a one-year horizon. It ensures the undertaking’s capital safety-net is sufficient to cover the loss of future profits and the liquidity-strain caused by a mass-exit of policyholders (e.g., due to a reputational crisis).

The calculation performs a portfolio-wide scenario test where 40% of the relevant contracts are terminated. This ensures the undertaking’s capital position reflects the risk of a severe contraction in the business volume. The result feeds the Non-Life Underwriting Risk and BSCR Aggregation modules.

Important Notes

• Stress-ledger evidence gate: Stressed basic own funds must be backed by a full balance-sheet revaluation flag and model-run evidence flag. The capital result remains the visible loss in basic own funds, while the governance-breach output flags unsupported stress inputs for review. Use `underwriting-stressed-bof-loss-bridge` when the valuation delta needs to be inspected as its own atomistic calculator.
• Gross vs. Net SCR: This calculator determines the standalone Non-Life Lapse Risk SCR on the visible stressed basis. Even where the page already reflects direct own-funds or tax effects, Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in Non-Life Risk, then within BSCR, and after the top-level LAC TP and LAC DT adjustments.
• Regulatory deviation: Material deviation from standard-formula assumptions at this layer may support a capital add-on or a move toward an internal model where justified.^[2]
• Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01.01 standard-formula reporting view.^[3]