1. Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for the risk of a permanent increase in lapse rates referred to in Article 159(1)(a) as follows:
\mathrm{Lapse}_{\mathrm{up}} = 0.5 \cdot \mathrm{l}_{\mathrm{up}} \cdot \mathrm{n}_{\mathrm{up}} \cdot \mathrm{S}_{\mathrm{up}}
where:
lupdenotes the higher of the average lapse rate of the policies with positive surrender strains and 83 %;
nupdenotes the average period in years over which the policies with a positive surrender strains run off;
Supdenotes the sum of positive surrender strains.
2. Where Article 88 is complied with, insurance and reinsurance undertakings may calculate the capital requirement for the risk of a permanent decrease in lapse rates referred to in 159(1)(b) as follows:
\mathrm{Lapse}_{\mathrm{down}} = 0.5 \cdot \mathrm{l}_{\mathrm{down}} \cdot \mathrm{n}_{\mathrm{down}} \cdot \mathrm{S}_{\mathrm{down}}
where:
ldowndenotes the average lapse rate of the policies with negative surrender strains;
ndowndenotes the average period in years over which the policies with a negative surrender strains runs off;
Sdowndenotes the sum of negative surrender strains.
3. The surrender strain of an insurance policy referred to in paragraphs (1) and (2) is the difference between the following:
the amount currently payable by the insurance undertaking on discontinuance by the policy holder, net of any amounts recoverable from policy holders or intermediaries;
the amount of technical provisions without the risk margin.