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Loss-Absorbing Capacity of Technical Provisions

Calculate the Loss-Absorbing Capacity of Technical Provisions instantly.

€
€
€
€
€

Gross SCR

€80 500 000

−

Net SCR

€65 500 000

=

LAC TP

€15 000 000

1Step 1

Gross SCR before adjustments (Art. 206(1))

SCRgross=BSCRgross+SCRop, gross\mathrm{SCR}_\mathrm{gross} = \mathrm{BSCR}_\mathrm{gross} + \mathrm{SCR}_\mathrm{op,\,gross}
2Step 2

Net SCR before LACDT (Art. 206(1))

nSCR=nBSCR+nSCRop\mathrm{nSCR} = \mathrm{nBSCR} + \mathrm{nSCR}_\mathrm{op}
3Step 3

LAC TP (Art. 206(2))

AdjTP=max⁡ ⁣(0,  min⁡(SCRgross−nSCR,  FDB))\mathrm{Adj}_\mathrm{TP} = \max\!\bigl(0,\;\min(\mathrm{SCR}_\mathrm{gross} - \mathrm{nSCR},\;\mathrm{FDB})\bigr)

Understand the Loss-Absorbing Capacity of Technical Provisions

Overview

This calculator implements the adjustment for the Loss-Absorbing Capacity of Technical Provisions (LAC TP) within the Solvency II standard formula.[1] The LAC TP adjustment is defined as the reduction in the Solvency Capital Requirement (SCR) resulting from the ability to reduce future discretionary benefits following a 1-in-200 year event. It represents the value of the liability-dampening effect of discretionary benefits in the SCR stresses.[2]

Input Terms

  • Gross SCR before adjustments: The gross capital requirement before loss-absorbing adjustments, equal to Gross BSCR plus Gross Operational Risk.
  • Net SCR before LACDT: The net capital requirement before deferred-tax relief, equal to Net BSCR plus Net Operational Risk.
  • Future Discretionary Benefits (FDB): The total discretionary-benefit amount embedded in technical provisions that can absorb losses, and therefore cap the LAC TP adjustment.[1]

Technical Rationale

The LAC TP adjustment is a fundamental component of the undertaking's capital-adequacy calculation. It ensures that the undertaking's Net SCR reflects the true economic impact of a 1-in-200 year event after accounting for the liability-mitigating effect of reducing future discretionary benefits.

The calculation assesses the difference between the gross and net SCR views and then applies the regulatory cap from available future discretionary benefits. This ensures the undertaking can quantify the specific capital benefit derived from its loss-absorption capacity in technical provisions. The result represents the technical-provisions component of the net reduction in the Total SCR.[1]

Important Notes

  • Cap by FDB: The LAC TP adjustment cannot exceed the total amount of future discretionary benefits included in the best estimate of technical provisions.
  • 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.[3]
  • Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view.[4]

Sources

  1. Directive 2009/138/EC - Art. 108 (Adjustment for the loss-absorbing capacity of technical provisions and deferred taxes) - EIOPA
  2. Directive 2009/138/EC - Art. 101 (99.5% VaR / 1-in-200 calibration) - EIOPA
  3. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  4. Commission Implementing Regulation (EU) 2015/2450 - QRT S.25.01 - 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.