Life Revision Risk

Overview

This calculator implements the gross capital requirement for the Life Revision Risk sub-module within the Solvency II standard formula.^[1] The Life Revision 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 the level of annuities due to changes in legal or medical conditions.^[2]

Input Terms

• Basic Own Funds (Pre-Stress): The undertaking's basic own funds before the application of the revision shock.
• Scenario Shock (Assets/Liabilities): The instantaneous change in the value of assets and technical provisions resulting from the prescribed 3% increase in annuity payments.^[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 Revision 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 increase in the level of annuity benefits, specifically regarding revision-sensitive contracts such as disability or accident-related annuities.^[1]

The calculation follows a stressed-own-funds approach, measuring the capital requirement as the reduction in net asset value (NAV) after applying a permanent 3% increase in the amount of annuity benefits. This shock applies only to those annuities whose amount can vary periodically as a result of a legal or medical decision. 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 revision assumptions. The final result represents the gross revision underwriting component before diversification in Life Risk.

Important Notes

• Revision-Sensitive Scope: This sub-module applies only to those life obligations where the amount of the benefit is potentially subject to periodic revision by a court or medical authority. Fixed-annuity portfolios are typically excluded.^[1]
• Portfolio-Specific Impact: For many "classic" life insurers, revision risk is and remains zero. It is typically a significant driver for undertakings with large concentrations of workers' compensation or liability-driven annuities.
• Gross vs. Net SCR: This calculator determines the standalone Life Revision 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 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.^[3]
• Reporting: The displayed result is intended to support the corresponding standard-formula component feeding the S.25.01 standard-formula reporting view.^[4]