Internal model approval – supervisors' different approaches

Last month’s Life & Pension Risk reported on how European regulators are dealing with the internal model approval process. In this month’s follow-up, Clive Davidson reports on how supervisors are dealing with ‘cherry picking’ and proportionality

The aim of Solvency II is to create a consistent risk-based regulatory regime across all European Union member states. Insurers have the option of creating internal models to measure their risk and hence determine their regulatory capital. However, the insurance markets within member countries differ widely, as does the degree of sophistication among the insurers themselves. Therefore, it is not surprising that when it comes to internal model approval by regulators there is some difference in