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

future Framework Directive. CEIOPS will fur<strong>the</strong>r consider this issue in
its answer <strong>to</strong> CfA 20.
18.88 The competent authorities should have <strong>the</strong> power <strong>to</strong> impose an
additional capital requirement at group level that has in place
insufficient capital, inadequate arrangements, processes, mechanisms
or strategies for <strong>the</strong> management and coverage of <strong>the</strong>ir risks.
(IV) Validation of internal models
Extract from <strong>the</strong> Call for Advice:
Validation process for internal models (see also separate Call for Advice on this
<strong>to</strong>pic): which supervisor(s) is/are responsible for <strong>the</strong> validation of <strong>the</strong> internal
model, how <strong>to</strong> ensure efficient co-operation of supervisors, what additional
requirements should be set for a group level model compared <strong>to</strong> a solo model
etc.
Explana<strong>to</strong>ry text
18.89 CfA 11 raises specific issues for consideration by CEIOPS: These issues
concern <strong>the</strong> following:
• Proposed Article: “The solvency capital requirement may be
calculated by an undertaking’s own internal model after validation
and approval by <strong>the</strong> competent authorities. The risk measure, <strong>the</strong>
time horizon and <strong>the</strong> scope of risks covered must not be less
prudent than in <strong>the</strong> standard approach. Detailed compliance
criteria for undertakings wishing <strong>to</strong> use internal models will be
established in implementing measures.”
• The <strong>Commission</strong> Services would like CEIOPS <strong>to</strong> give technical
advice on appropriate EU standards for calculating <strong>the</strong> SCR by an
internal model and on <strong>the</strong> compliance criteria for model validation
and approval by <strong>the</strong> supervisor.
This answer seeks <strong>to</strong> address issues that may arise in <strong>the</strong> case of
model validation for insurance groups.
18.90 In <strong>the</strong> insurance sec<strong>to</strong>r, quantitative partial models have mainly been
used for pricing and provisioning, and it is only recently that
undertakings have begun <strong>to</strong> attempt <strong>to</strong> model <strong>the</strong> risk profile of <strong>the</strong>
entity for both management and solvency purposes. To date, evidence
would suggest that, at least in <strong>the</strong> initial stages (due <strong>to</strong> complexity,
cost or lack of experience among o<strong>the</strong>rs), models will be specifically
designed at group level.
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