Tailoring internal models

Swiss Re’s Pablo Koch Medina, Frank Krieter and Stephan Schreckenberg highlight the key features and main limitations of internal risk models for insurers

Internal risk models for insurance1 companies have been the focus of increased attention lately. Now, driven partly by developments in the banking industry2, insurance regulators and rating agencies have started thinking aloud about the possibility of assessing the capital adequacy of an individual company by allowing it to use its own internal risk models. This article focuses on the main features internal risk models should have, and on explaining what their limitations are.