How insurers are dealing with internal model validation

Model validation is a key element for internal model approval under Solvency II, but it is one of the most demanding. Clive Davidson reports on how insurers are meeting the challenge

One of the key requirements for regulatory approval of an internal model under Solvency II is that it is properly validated by the insurer. The primary reason is to ensure that the level of regulatory capital held by the insurer is not miscalculated to the extent that it undermines policyholder protection.

But it is not just a matter of regulatory compliance. No model will predict the future with absolute certainty and, given the central role that internal models will play in the business