CEIOPS' Advice for Level 2 Implementing ... - EIOPA - Europa

Annex C. Further comments regarding simplifications for submodules
under the life underwriting risk
C.1. In this annex an overview of the most common simplifications for life
underwriting risk that can be used on level no. 2 of the basic decision
hierarchy are given. These methods, used to assess the capital charge for
the sub-risks under the life underwriting risk, are presented in more detail
in CEIOPS Advice rgarding simplifications of the SCR. They can be used
both to assess the present and the future capital charges for the submodules.
C.2. In order to be able to use the simplifications to assess the capital charge
for future years, all the relevant input data – the duration of the liabilities,
the total capital at risk for the mortality sub-risk, the best estimate of
technical provision for the longevity sub-risk, the expected average
biometrical intensities, and so on – would have to be estimated for each
future year t during the liabilities lifetime.
C.3. Mortality risk: The capital charge for mortality risk can be taken as 15 per
cent (the mortality shock rate) of the product of the following factors:
• the total capital at risk,
• an undertaking-specific expected average death rate over the next
year (weighted by the sum assured),
• the modified duration of the liability cash-flows and
• the Projected Mortality Increase (1.1 ((n-1)/2) ), cf. the assumption that
the average mortality rate of the portfolio, due to age, increases over
the period corresponding to the length of the duration with 10 per
cent a year.
C.4. Longevity risk: The capital charge for longevity risk can be taken as 25 per
cent (the longevity shock rate) of the product of the following factors:
• the technical provisions (the best estimate) for contracts subject to
longevity risk,
• an undertaking-specific expected average death rate over the next
year (weighted by the sum assured),
• the modified duration of the liability cash-flows and
• the Projected Mortality Increase
C.5. Disability risk: The capital charge for disability risk can be taken as the
sum of
• the capital requirement for an increase of 50 per cent in morbidity/
disability inception rates for the first year,
• the capital requirement for an increase of morbidity/disability inception
rates by 25 per cent for all subsequent years and
• the capital requirement in respect of the risk that the duration of
claims is greater than expected, represented by a 20 per cent
decrease in the termination rates, where the individual elements are
calculated as sketched below.
100/112
© CEIOPS 2010