Lapse rates in the German market The lapse rates in the German market vary

Lapse rates in the german market the lapse rates in

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Lapse rates in the German market The lapse rates in the German market vary widely. We can identify the following main drivers Product mix, since e.g. savings business often has a higher lapse experience than protection business Sales channels Maturity of the inforce business The heterogeneous picture with regard to lapse rates is confirmed by data from the German BaFin which contains quantiles of relative lapse rates and shows a high volatility in time and among companies: 2011 2012 2013 2014 2015 95% quantile 8.33% 7.68% 7.64% 7.42% 6.94% 75% quantile 5.48% 5.27% 5.19% 4.77% 4.61% median 4.18% 4.11% 4.01% 3.78% 3.39% mean 4.70% 4.53% 4.47% 4.10% 3.76% Template comments 38/66
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Comments Template on Discussion Paper on the review of specific items in the Solvency II Delegated Regulation Deadline 3 March 2017 23:59 CET 25% quantile 3.39% 3.33% 3.39% 2.95% 2.70% 5% quantile 1.93% 1.84% 1.80% 1.77% 1.63% In addition, with general market data available (1975 – 2014) quantiles have been evaluated to review lapse up and down shock. Data shows quantiles of 99.5% at 10.59% and 0.5% at -11.38%. From our perspective this indicates that shock parameters currently used in the standard formula might be too high and after a reduction stress would still reflect the risk adequately. Overall Solvency Needs Assessing the overall solvency needs life insurance companies calibrate the lapse risk according to their specific risk profile. Market experience tells us that the company specific calibrated lapse risk is usually much lower than the one used in the standard formula. We would like to recommend a formal check of this claim by EIOPA. Conclusion Given the substantial impact of lapse risk in the European life insurance market, the highly company specific characteristics in terms of lapse level and volatility in e.g. Germany, the experience companies gained calibrating lapse risk when calculating the overall solvency needs and the results of the overall solvency needs calculation that suggest that the parameters of the standard formula do not necessarily fit We suggest to introduce the possibility of USP for lapse risk. Second Comment: Mass Lapse We failed to confirm the parameters for lapse risk checking and validating them with market data. Mass lapse may be subject to primary business model. If life insurance is focused on long-term protection similar to pension schemes, mass lapse is directly linked to biometric components and consumer bonding to insurer. Even in the actually occurred event of an insolvency of a German life insurer which was then handed over to a protection fund, lapse rates did not exceed 20%. Template comments 39/66
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Comments Template on Discussion Paper on the review of specific items in the Solvency II Delegated Regulation Deadline 3 March 2017 23:59 CET This corresponds to observations in health insurance, where mass lapse has been evaluated empirically using lognormal distributions. On the 99.5%-quantile of these data a 200 year event has been calculated with 20%.
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