Solvency II Internal Model Documentation Requirements

Dermot Marron

Successive industry surveys have shown documentation to be among the greatest challenges for undertakings in relation to internal models. In 2009, a Staple Inn Actuarial Society survey (Austin et al, 2009) indicated that 75% of firms had not even commenced the process of updating their model documentation to meet the Solvency II standard. One comment in the survey was “Our current documentation standards are high, but the approvals process appears to require much more than this”. In the EIOPA guidelines (EIOPA, 2013b), the feedback was summarised as “Some stakeholders consider documentation requirements as burdensome”. Stronger views have been expressed in the intervening period, but the consistent message has been that the documentation standards are high and the requirements many. This is perhaps a fair reflection of the requirements; however, when one considers the reason for the documentation requirements in the first place, the requirements make more sense and, rather than being burdensome, they should be seen as good risk management.

This chapter will draws on the author’s experience of constructing and reviewing models as a chief actuary, regulator and consultant, and