Health Income Protection Disability-Morbidity Risk Simplification

Overview

This calculator implements the simplified capital requirement for Health Income Protection Disability-Morbidity Risk within the Solvency II standard formula.^[1] It applies the Article 100 approximation using prepared CAR₁ and CAR₂ inputs.

Input Terms

• Capital at Risk During Next 12 Months (CAR1): The prepared total income-protection capital at risk exposed to disability-morbidity incidence during the next 12 months. Health Income Protection Disability-Morbidity CAR1 / CAR2 Capital at Risk calculates one contract or prepared slice; this calculator does not calculate the portfolio sum.^[1]
• Average Disability-Morbidity Rate During Next 12 Months (d1): The average income-protection disability-morbidity rate for the next 12 months.^[1]
• Capital at Risk After 12 Months (CAR2): The prepared total income-protection capital at risk exposed after the first 12 months. Health Income Protection Disability-Morbidity CAR1 / CAR2 Capital at Risk can be used for one after-12-month contract or slice, but the total remains an input here.^[1]
• Average Disability-Morbidity Rate in Following 12 Months (d2): The average income-protection disability-morbidity rate for the following 12-month period.^[1]
• Modified Duration of Benefit Payments (n): The modified duration of income-protection benefit payments included in the best estimate.^[1]
• Expected Termination Rate During Next 12 Months (t): The expected termination rate for income-protection disability benefits during the next 12 months.^[1]
• Best Estimate of Income-Protection Obligations: The best estimate of obligations exposed to income-protection disability-morbidity risk.^[1]

Technical Rationale

Article 100 approximates income-protection disability-morbidity capital using prepared CAR₁ and CAR₂, incidence rates, expected termination, and duration-based factors.^[1] The simplification is a proportional substitute for a full stressed valuation only where the Article 100 conditions are supportable; broader Health Risk aggregation remains a separate capital requirement step.

Important Notes

• Applicability: The simplification is intended for income-protection portfolios where the Article 100 parameters reasonably represent the disability-morbidity exposure.^[1]
• Gross vs. Net SCR: This simplification estimates the standalone Health Income Protection Disability-Morbidity Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in the higher Health Risk aggregation path, then within BSCR, and after the top-level LAC TP and LAC DT adjustments.
• Regulatory deviation: Material deviation from the standard-formula assumptions or from the conditions supporting this simplification may support a capital add-on or a move toward a fuller or internal-model approach where justified.^[2]
• Reporting: The simplified result is intended to support the corresponding standard-formula component for the S.25.01.01 standard-formula reporting view, not to replace the full article-based result where the simplification is not justified.^[3]