Internal model approval – the regulator’s view

No two insurers are identical and opting for an internal model should provide the most capital-efficient results under Solvency II. But national regulators are a diverse group too, and different states are taking varying approaches to the internal model approval process. Clive Davidson reports

Solvency II allows insurers for the first time to use internal models to calculate their solvency capital. For those companies that chose this route, developing such a model is usually a large and complicated task. It is also a challenge for the regulators themselves who have to scrutinise the models and approve them.

The new directive will apply across the European Union, covering a range of companies that vary widely in their size, complexity and the sophistication of their risk management and