Health SLT Expense Risk Simplification

Overview

This calculator implements the simplified capital requirement for Health SLT Expense Risk within the Solvency II standard formula.^[1] It applies the Article 101 expense and inflation stress approximation for similar-to-life health obligations.

Input Terms

• Annual Expenses Last Year: The annual expenses incurred during the last 12 months for health SLT obligations exposed to expense risk.^[1]
• Modified Duration of Expense Cash Flows: The modified duration of health SLT expense cash flows included in the best estimate.^[1]
• Average Inflation Rate in Best Estimate: The average inflation rate assumed in the best-estimate expense projection.^[1]

Technical Rationale

Article 101 approximates health expense risk by stressing annual expenses and inflation over the modified duration of expense cash flows.^[1] The simplification is a proportional substitute for a full stressed valuation only where the Article 101 conditions are supportable; broader Health Risk aggregation remains a separate capital requirement step.

Important Notes

• Applicability: The simplification should only be used where the expense base and inflation assumption are representative of the relevant health SLT obligations.^[1]
• Gross vs. Net SCR: This simplification estimates the standalone Health SLT Expense 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]