Answers to the European Commission on the ... - Eiopa - Europa

equirements <strong>to</strong> improve <strong>the</strong> internal model, but of covering <strong>the</strong>
additional risk in <strong>the</strong> meantime.
Partial models and <strong>the</strong> interplay with <strong>the</strong> standard formula
11.85 In principle, partial internal models should be permitted for
calculation of <strong>the</strong> SCR. Aims and benefits are
• <strong>to</strong> ease transition from <strong>the</strong> standard formula <strong>to</strong> 'full' internal
models;
• <strong>to</strong> encourage innovation and specialization <strong>to</strong> certain business
areas;
• <strong>to</strong> deal with exceptional cases, like <strong>the</strong> merger of two
undertakings (one with an approved model, <strong>the</strong> o<strong>the</strong>r using <strong>the</strong>
standard formula) in a pragmatic way.
However additional constraints on <strong>the</strong> use of partial models are
appropriate in order <strong>to</strong> avoid 'cherry-picking'.
11.86 A partial internal model is <strong>to</strong> be considered as an internal model in
<strong>the</strong> sense of <strong>the</strong> above conceptual framework. Therefore a close
alignment between rules on full and partial use of models is essential.
The approval of partial models should be governed by <strong>the</strong> same
principles as any o<strong>the</strong>r internal model. The same set of compliance
and validation criteria – statistical quality test, use test and
calibration test – should be required, enhanced by tests for 'cherrypicking'.
11.87 CEIOPS should be commissioned <strong>to</strong> develop not just a standard
formula, but also provide a detailed actuarial rationale behind <strong>the</strong>
overall formula and each individual element of it. This would support
undertakings in developing and using partial models by enabling
<strong>the</strong>m <strong>to</strong> establish relationships between <strong>the</strong>ir internal approaches and
<strong>the</strong> standard formula. As a result, undertakings could implement
partial modelling approaches by proposing enhancements <strong>to</strong> <strong>the</strong>
standard model.
11.88 Proposed enhancements <strong>to</strong> <strong>the</strong> standard model must prove <strong>the</strong>ir
economic benefit for both an undertaking and its supervisor through
individually passing <strong>the</strong> full array of tests – statistical quality, use and
calibration – applied <strong>to</strong> internal models. Insurance undertakings
should present a clear rationale for proposing any enhancements <strong>to</strong>
<strong>the</strong> standard formula. Enhancements should provide both an
undertaking and its supervisor with a better understanding of <strong>the</strong>
risks <strong>to</strong> which <strong>the</strong> undertaking is exposed. Use of data specific <strong>to</strong> <strong>the</strong>
undertaking is not in itself sufficient for this purpose.
Information technology
11.89 IT solutions used in internal models should be documented in a
133