US insurers under pressure to ramp up modelling frameworks

US insurers reviewing models as regulations begin to bite

blackboard-with-equations

It is tempting to think of financial models like the scaled-down replicas of aeroplanes used in wind-tunnel testing, providing an accurate simulation of how a firm’s balance sheet will behave when buffeted by the headwinds of market turmoil. In reality, though, they are more like Impressionist paintings, offering a nebulous picture of what could happen, rather than what will happen.

While they can only ever provide a pale reflection of the probable, the use of models among insurance companies ha