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:

Lapse_up = 0,5 • l_up • n_up • S_up

where:

(a) l_up denotes the higher of the average lapse rate of the policies with positive surrender strains and 67 %;

(b) n_up denotes the average period in years over which the policies with a positive surrender strains run off;

(c) S_up denotes 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 as follows:

Lapse_down = 0,5 • l_down • n_down • S_down

where:

(a) l_down denotes the higher of the average lapse rate of the policies with negative surrender strains and 40 %;

(b) n_down denotes the average period in years over which the policies with a negative surrender strains runs off;

(c) S_down denotes the sum of negative surrender strains.