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1.Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for the risk of a permanent increase in lapse rates as follows:
where:
lup denotes the higher of the average lapse rate of the policies with positive surrender strains and 67 %;
nup denotes the average period in years over which the policies with a positive surrender strains run off;
Sup denotes the sum of positive surrender strains.
2.Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for the risk of a permanent decrease in lapse rates as follows:
where:
ldown denotes the higher of the average lapse rate of the policies with negative surrender strains and 40 %;
ndown denotes the average period in years over which the policies with a negative surrender strains runs off;
Sdown denotes the sum of negative surrender strains.
3.The surrender strain of an insurance policy referred to in paragraphs 1 and 2 is the difference between the following:
(a)the amount currently payable by the insurance undertaking on discontinuance by the policy holder, net of any amounts recoverable from policy holders or intermediaries;
(b)the amount of technical provisions without the risk margin.