Foreword

Gabriel Bernardino

Solvency II will bring about a transformation of insurance supervision in Europe. It will replace an outdated and fragmented regulatory regime with a harmonised approach based on sound core principles that will increase policyholder protection.

Internal models play an important role in Solvency II. Through them, the same modern developments in risk management and actuarial science, tailored to the risk profile of an individual company, can be used to calculate regulatory capital and make decisions in running a company.

Internal models must necessarily be as complex as the risks they are seeking to quantify, but this must not be at the expense of transparency and responsibility. Solvency II rightly sets high standards for any company wanting to gain approval to use its internal model to calculate regulatory capital requirements.

For all but the most advanced insurers, internal models have been something of a new world. As with any new place, it takes a while to become familiar with the surroundings, to discover pitfalls and dangers that may not be evident at first, and to find shortcuts that can save time. A book that shares the knowledge of experienced practioners and

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