PARTIAL INTERNAL MODEL UNDER THE SOLVENCY II FOR THE LIFE INSURANCE LAPSE RISK

Uncertainty in terms of the expected lapse rate of life insurance contracts affects the risk of imprecise determination of solvency capital requirement, minimum capital requirement, and performance of an insurance company. Therefore, a precise lapse risk projection of a life insurance contract bears great significance. The lapse rate is influenced by numerous factors. Solvency capital requirement in terms of the life insurance lapse risk under Solvency II regime may be determined by using a prescribed standard formula or partial internal model. On the example of data obtained from the Serbian insurance market and by using an R software package, this paper will show in detail the selection of lapse rate risk factor modelling. It will also show the formation of the GLM model of lapse rates and verification of assumptions of the GLM. The developed partial internal model may be applied for determining the lapse rate of an insurance company operating on the domestic market.

Key words: partial internal model, lapse risk