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Life Expense Risk Simplification

Calculate the Expense Risk Capital Requirement instantly.

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Expense Risk Capital Requirement

€8 874 936

Expense Increase

10.0%

Inflation Increase

1.0%

1Step 1

Expense Risk Capital Requirement

Expense Risk Capital Requirement=expense_risk_simplified⁡(Annual Expenses Last Year (EI),Modified Duration of Expense Cash Flows (n),Average Inflation Rate in Best Estimate (i),Expense Increase,Inflation Increase)\textit{Expense Risk Capital Requirement} = \operatorname{expense\_risk\_simplified}\left(\textit{Annual Expenses Last Year (EI)}, \textit{Modified Duration of Expense Cash Flows (n)}, \textit{Average Inflation Rate in Best Estimate (i)}, \textit{Expense Increase}, \textit{Inflation Increase}\right)

Understand the Life Expense Risk Simplification

Overview

This calculator implements the simplified capital requirement for Life Expense Risk within the Solvency II standard formula.[1] It applies the Article 94 expense and inflation stress approximation.

Input Terms

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

Technical Rationale

Article 94 approximates life 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 94 conditions are supportable; broader Life 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 obligations.[1]
  • Gross vs. Net SCR: This simplification estimates the standalone Life Expense Risk SCR. Solvency II risk is only finalized as a net impact on Basic Own Funds after diversification in Life Risk, 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]

Sources

  1. Delegated Regulation (EU) 2015/35 - Art. 94 (Simplified calculation of the capital requirement for life-expense risk) - EIOPA
  2. Directive 2009/138/EC - Art. 37 (Capital add-on) - EIOPA
  3. Commission Implementing Regulation (EU) 2023/894 - QRT S.25.01.01 (SCR standard formula) - EUR-Lex

Default values are illustrative sample inputs for navigation, training, and QA. Replace them with controlled data before using the result in capital analysis, governance, or reporting decisions.