I was wondering if someone could explain the rational for some of the shocks only applying where they would lead to an increase in BEL? I get that in the lapse stresses, there could be some anti-selection in mind. But what about, say, mortality? Thanks in advance!
Hi - apologies that it has taken a while to answer this. Let's think back to the basic purpose of the SCR: it is the amount of capital that an insurance company should hold in order to allow it to be able to continue to cover its technical provisions under an extreme (1 in 200 year) adverse event. In order to assess this capital requirement, it therefore needs to consider the extent to which it has downside risk in each of the areas covered by the risk module. For some risks, such as expense risk or mortality risk, the direction of the downside (or adverse) stress is straightforward (expenses higher; mortality higher - noting that the longevity risk sub-module covers the lower-mortality direction). For others, such as lapse risk, depending on the product and/or duration, the downside/adverse stress could be higher or lower. I hope that addresses what you were asking.
