EIOPA · 2560
Solvency Capital Requirement (SCR)
- Regulation
- (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
- Article
- 142
- Topic
- Solvency Capital Requirement (SCR)
- Submitted
- 2023-01-19
- Answered
- 2023-04-21
Question
Under Q&A 1678, you indicated that “using the assumption of constant per policy expense for determining the capital requirement for mass lapse risk may in many cases be too optimistic with respect to the possibility to reduce costs”.
The per policy of expense of a company may change in case of many other standard formula scenarios (increase in lapse rates, decrease in lapse rates, mortality, longevity, etc). Is it a reasonable assumption that the per-policy expenses change in case of expense and mass lapse risks but remain unchanged in case of other scenarios under the standard formula?
Answer
In all scenarios where the number of policies changes, including the increase or decrease in lapse rates and the increase or decrease of mortality rates, the general principle set out in Q&A 1678 is valid. Whether and by how much future expenses can change due to a lower or higher number of policies depends on undertaking specifics like the proportion of fixed and variable expenses. Whether the assumption of constant per policy expense for determining the capital requirement is realistic depends on the particular situation of the undertakings.
This Q&A is published by European Insurance and Occupational Pensions Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.
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