Internal Models and Solvency II
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Internal Models to Calculate the Group Solvency Requirement: The Perspective of the Home and Host Supervisor
Agnieszka Groniowska, Perrine Kaltwasser and Regis Weisslinger
Foreword
Introduction
Balance Sheet, Capital Requirements and Internal Models
Partial Internal Models
The Internal Model Approval Process
Policy for Model Changes
Internal Models to Calculate the Group Solvency Requirement: The Perspective of the Home and Host Supervisor
Use Test: Challenges and Opportunities
Statistical Quality Standards: Challenges in Internal Model Implementation
Representation, Reality and the Solvency II Data Challenge
The Calibration Standards
Profit and Loss Attribution
Internal Model Validation: The Regulatory Perspective
Model Validation: An Industry Perspective
Solvency II Internal Model Documentation Requirements
How to Review External Models and Data Embedded in the Modelling Framework
The Limitations of Internal Models and the Supervisory Review Process
An important aspect of the Solvency II directive is the development of requirements for the supervision of insurance groups. The strengthening of supervision at group level, which was only supplementary in the 1998 Insurance Group Directive, enhances the functioning of the European insurance market and facilitates the supervision of international insurance groups.
Group supervision under Solvency II is supported by the supervisory college11 Colleges of supervisors refer to multilateral groups of relevant supervisors that are formed for the collective purpose of enhancing the efficient, effective and consistent supervision of financial institutions operating across borders. and the key role of the group supervisor. The supervision of insurance groups includes the requirement to calculate a group solvency capital requirement (SCR). As for the solo capital requirement, the consolidated group SCR can be calculated using an internal model as approved by the relevant supervisors.
This chapter will consider certain aspects of regulations relating to the internal models for insurance groups as provided in the Solvency II directive adopted in 2009. The chapter focuses on the
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