Internal Models and Solvency Two

Download or read book Internal Models and Solvency Two written by Paolo Cadoni and published by . This book was released on 2014 with total page 367 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the Solvency II directive, insurance companies are required to calculate their Solvency Capital Requirement (SCR) in order to prove to supervisors, policyholders and beneficiaries that they have a high enough level of funds to absorb significant losses and to make payments as they fall due. They have a choice between a standard formula and an internal model in calculating their SCR. Many companies favour internal models as they are more risk-sensitive, capture individual risk profiles and therefore reduce the capital requirements placed on insurance companies by Solvency II. However, internal models are subject to approval by supervisory bodies. Insurance companies need to demonstrate that their internal model meets the use test, statistical quality standards, calibration standards, validation standards and documentation standards. Internal Models and Solvency II clarifies the requirements for practitioners and senior executives by providing regulatory and practical insight into internal models. Perspectives from both the supervisory and industry side gives unique insight into the spirit and rationale of the requirements, and are complemented by practical solutions to the daily challenges faced when reviewing and implementing internal models. Edited by Paolo Cadoni, currently Technical Head of the Insurance Policy Department at the Prudential Regulation Authority, this book provides support and solutions for the managers charged with implementing and validating their companies' internal models, helping readers to ensure the compliance of their models. Insurance supervisors will also be able to use this book to clarify the requirements when reviewing internal model applications. Internal Models and Solvency II gives readers a wider understanding of the history, challenges, philosophy, and future prospects of Solvency II internal models