Life Lapse-Up Stress

Overview

Article 142 defines the permanent lapse-up stress for policyholder-behaviour risk where higher lapses are adverse.^[1]

Input Terms

• Current Lapse Rate: Representative pre-stress lapse rate for the portfolio slice being tested.^[1]

Technical Rationale

Article 142 treats policyholder behaviour as a source of asymmetric risk because higher lapses can remove future profitable premiums, surrender deductions, or expected margins.^[1] The upward lapse scenario is relevant only where accelerated discontinuance worsens the undertaking's basic own funds.

The capped stressed assumption keeps the rate within a valid probability range. The lapse-up direction remains separate because Article 142 requires the adverse policyholder-behaviour scenario to be identified after valuation-model loss measurement.

Important Notes

• This is a stress-specification page, not a basic-own-funds loss bridge.
• Final lapse risk uses the largest prepared loss across lapse-up, lapse-down, and mass-lapse scenarios.
• Valuation scope is limited to relevant policyholder options and portfolio slices where the lapse-up scenario is adverse; this page does not validate that scope.