Internal model should not become a capital optimisation tool
Saturday, 06 13 2015, Category: Insurance and Reinsurance, Country: Europe
The European Insurance and Occupational Pensions Authority (EIOPA) has warned against the use of internal models to reduce capital requirements under Solvency II.
Gabriel Bernardino, EIOPA’s chairman, said there had been examples of this in the banking sector under different regulations but it would “kill the underlying idea of an internal model”.
Speaking remotely using video conference technology for the European Insurance Conference, organised by JP Morgan, Bernardino said: “Lessons need to be learned: internal models should not become a capital management and especially a capital optimisation tool. A race to the bottom will kill the underlying idea of an internal model.”
Bernardino, who began his career as an actuary, said when applying for approval insurers needed to demonstrate their internal model meets a number of requirements such as the use test and statistical standards around quality, calibration, validation and documentation.
Source: The Actuary