1. 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 as follows:
\mathrm{Lapse}_{\mathrm{up}} = 0.5 \cdot \mathrm{l}_{\mathrm{up}} \cdot \mathrm{n}_{\mathrm{up}} \cdot \mathrm{S}_{\mathrm{up}}
where:
(a)((a)) lupdenotesl_{up} denotes the higher of the average lapse rate of the policies with positive surrender strains and 67 %;
(b)((b)) nupdenotesn_{up} denotes the average period in years over which the policies with a positive surrender strains run off;
(c)((c)) SupdenotesS_{up} denotes the sum of positive surrender strains.
2. 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 as follows:
\mathrm{Lapse}_{\mathrm{down}} = 0.5 \cdot \mathrm{l}_{\mathrm{down}} \cdot \mathrm{n}_{\mathrm{down}} \cdot \mathrm{S}_{\mathrm{down}}
where:
(a)((a)) ldowndenotesl_{down} denotes the higher of the average lapse rate of the policies with negative surrender strains and 40 %;
(b)((b)) ndowndenotesn_{down} denotes the average period in years over which the policies with a negative surrender strains runs off;
(c)((c)) SdowndenotesS_{down} denotes the sum of negative surrender strains.
3. 3. The surrender strain of an insurance policy referred to in paragraphs 1 and 2 is the difference between the following:
(a)((a)) the amount currently payable by the insurance undertaking on discontinuance by the policy holder, net of any amounts recoverable from policy holders or intermediaries;
(b)((b)) the amount of technical provisions without the risk margin.