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Author: Simone Nosotti, Content Creator

Currently the insurance companies all over the world are experiencing a sharp increase in the capital requirement releted to lapse risk. Lapse risk the risk of loss, or of adverse change in the value of insurance liabilities, resulting from changes in the level or volatility of the rates of policy lapses, terminations, renewals and surrenders. This item is strongly significant for the life insurers because it can drastically change profitability of the contracts linked to the evolution of interest rates (with-profit contract).

ANIA has recently reported the data from an aggregate QRT analysis of the SCR lapse risk (capital requirement) Italian life insurance companies in the current stressed scenario. The lapse mass has become from the three scenarios (increase/decrease in lapse rates by 50 % in the first and in the second scenario, third one: lapse mass) the most relevant in terms of C.R. for 50% of the companies. The increase in the standard formula is about 100% with respect to the previous year 2020. In this market context what worsen the situation is the decrease on the asset side due to higher rates.

Actually the insurance companies are facing one of the most difficult situations since the financial crysis, an important challange that it will test the adequacy of the Solvency II framework, in particular the standard formula.

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