A stamp of approval

Solvency II will permit insurers to use internal models to calculate their capital, but how will regulators decide whether to approve them or not? Clive Davidson reports

From 2012, insurers will have a choice of applying a standard formula for calculating capital or using internal models, with the thrust of the proposed Solvency II directive towards encouraging the development of models. But modelling the activities of a modern insurer, especially one with global operations and multiple lines of business, is no small task. Meanwhile, supervisors will have to approve the results, which will require of them a whole new set of skills and expertise. Regulators can