Life Longevity Risk

Overview

This calculator implements the gross capital requirement for the Life Longevity Risk sub-module within the Solvency II standard formula.^[1] The Life Longevity Risk requirement is defined as the economic capital necessary to cover the loss in basic own funds resulting from a 1-in-200 year stress event affecting mortality rates, representing a permanent 20% decrease for each relevant age.^[2]

Input Terms

• Basic Own Funds (Pre-Stress): The undertaking's basic own funds before the application of the longevity shock.
• Scenario Shock (Assets/Liabilities): The instantaneous change in the value of assets and technical provisions resulting from the 20% longevity increase (mortality decrease).^[1]
• LAC TP / LACDT (Scenario-Specific): The reduction in the gross scenario loss provided by the loss-absorbing capacity of technical provisions and deferred taxes.

Technical Rationale

The Life Longevity Risk sub-module is calibrated to a 99.5% confidence level over a one-year horizon. It captures the sensitivity of the undertaking’s basic own funds to an adverse decrease in death rates (increase in life expectancy) for policies where longer-than-expected survival is a risk driver (e.g., annuities).^[1]

The calculation follows a stressed-own-funds approach, measuring the capital requirement as the reduction in net asset value (NAV) after the 20% shock is applied across the entire life portfolio. This method ensures that the requirement reflects the real economic loss after claims, reserves, and potential tax offsets have all reacted to the change in mortality assumptions. The final result represents the gross longevity underwriting component before diversification in Life Risk.

Important Notes

• Scenario Binding Logic: Only policies that are sensitive to a longevity increase (where survival is the risk event) are included in the shock. Policies with a mortality sensitivity (e.g., term assurance) are excluded from this sub-module and managed under Mortality Risk.^[3]
• Risk-Free Interaction: Longevity risk is often the largest underwriting risk for annuity providers, especially when combined with interest-rate volatility. Proper matching of asset and liability durations is critical to reducing the capital impact of this module.
• Gross vs. Net SCR: This calculator determines the standalone Life Longevity 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 Life Risk, then within BSCR, and after the top-level LAC TP and LACDT 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.^[4]
• Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view.^[5]