Hostname: page-component-7bb8b95d7b-pwrkn Total loading time: 0 Render date: 2024-09-12T07:32:52.632Z Has data issue: false hasContentIssue false
  • English
  • Français

Actuarial Aspects of Internal Models for Solvency II

Published online by Cambridge University Press:  12 December 2011

D. Brooks ,
R. J. Care ,
M. B. Chaplin ,
A. M. Kaufman ,
K. A. Morgan ,
D. N. Roberts ,
J. M. E. Skinner ,
D. J. K. Huntington-Thresher ,
P. J. Tuley  and
D. L. Wong
K. A. Morgan
Affiliation:
Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS, U.K. Tel: +44 (0) 20-7066 7890; E-mail: Kathryn.Morgan@fsa.gov.uk
Get access Rights & Permissions [Opens in a new window]

Abstract

The draft paper sets out the authors' views of what good practice for the actuarial aspects of internal models will look like in 2012, the year Solvency II is expected to be implemented. Actuaries working on internal models can expect to have to follow such practices if their internal models are to be approved for use in calculating regulatory capital. The paper is therefore relevant for actuaries who plan to work on internal model implementation for Solvency II.

Moreover, the risk quantification techniques discussed in the paper can also be used in the Own Risk Solvency Assessment (ORSA) process also required by Solvency II. The paper is therefore relevant to actuaries working in companies that are not planning to apply to use an internal model.

The paper covers both life and non-life insurance and reinsurance, and reviews current practice as well as setting out possible future practice. This leads to identification of areas for research by the Profession to prepare for 2012 and an indication of the directions this work might take.

The paper is effectively a work in progress, and readers should ask themselves what they should do in response to the ideas discussed.

Keywords

Solvency IIRegulatory Model ApprovalCapital ModelsEconomic CapitalDiversification and Co-Dependency of RisksTime HorizonExtreme EventsGroup Risk: Data Quality: Expert Judgement: Model Use TestModel Statistical Quality TestModel Calibration Standards: Model Profit and Loss Attribution: Model ValidationModel Documentation
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 15 , Issue 2 , July 2009 , pp. 367 - 459
Copyright
Copyright © Institute and Faculty of Actuaries 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Baker, I., Bunch, T., Coates, G., Fuller, A., Lee, M., Pears, J., & Rowe, B., (2006). Management Actions: Myth or Reality (presented to the 2006 Life Convention).Google Scholar
Board for Actuarial Standards (2008a). Modelling: Consultation Paper, available at: http://www.frc.org.uk/images/uploaded/documents/Modelling%20CP%20final.pdfGoogle Scholar
Board for Actuarial Standards (2008b). Generic Data Standard: Consultation Paper, available at: http://www.frc.org.uk/images/uploaded/documents/Data%20Condoc%20FINAL1.pdfGoogle Scholar
Bodoff, N., (2008). Capital allocation by percentile layer (presented to ASTIN Colloquium in July 2008, © Willis), available at: http://www.actuaries.org/ASTIN/Colloquia/Manchester/Presentations/Bodoff.pdfGoogle Scholar
Cairns, M., & Skelding, R., (2008). Variable Capital Loads in Pricing (presented to GIRO in September 2008), available at: http://www.actuaries.org.uk/research-and-resources/pages/general-insurance-convention-2008Google Scholar
CFO Forum (2008). CFO Forum: Market Consistent Embedded Value Principles, available at: http://www.cfoforum.nl/embedded_value.htmlGoogle Scholar
Chief Risk Officer Forum (2005). A framework for incorporating diversification into the solvency assessment of insurers, available at: http://www.thecroforum.org/publication.htmlGoogle Scholar
Chief Risk Officer Forum (2008a). Market value of liabilities for insurance firms — Implementing elements for Solvency II, available at: http://www.thecroforum.org/publication.htmlGoogle Scholar
Chief Risk Officer Forum (2008b). Liquidity risk management, available at: http://www.thecroforum.org/publication.htmlGoogle Scholar
Commission of The European Communities (2008). Directive of the European Parliament and of the Council on the taking up and pursuit of the business of Insurance and Reinsurance (“Solvency II”), available at: http://ec.europa.eu/index_en.htmGoogle Scholar
Committee of European Insurance and Occupational Pension Schemes (CEIOPS) (2007). Calibration of the credit risk, available at: https://eiopa.europa.eu/Google Scholar
Committee of European Insurance and Occupational Pensions Schemes (CEIOPS) (2009). Report on the outcome of the stock-taking exercise on the current use of internal models in insurance, available at: https://eiopa.europa.eu/Google Scholar
Claus, S., & Jackson, R., (2006). The time horizon conundrum (article for The Actuary magazine, 1 December 2006), available at: http://www.the-actuary.org.uk/697918Google Scholar
Crozet, J.B., & van Rensburg, H., (2008). Integrating pricing and capital modelling (presented to GIRO in September 2008), available at: http://www.actuaries.org.uk/research-and-resources/pages/general-insurance-convention-2008Google Scholar
Dartington, A., Grout, S., & Whitworth, J., (2001). How safe is safe enough — an introduction to risk management (presented to Staple Inn Actuarial Society 12 June 2001), available at: http://www.sias.org.uk/siaspapers/search/view_paper?id=RiskManagementGoogle Scholar
Deloitte and Touche LLP (2005). Report for the ABI on key correlation assumptions in ICA for life offices, available at: http://www.abi.org.uk/Google Scholar
Financial Services Authority (2006). ISG Expert Groups: Draft ICA Principles and Guidance, available at: http://www.fsa.gov.uk/pubs/international/isgdraftica.pdfGoogle Scholar
Financial Services Authority (2008). Discussion Paper 08/04, Insurance Risk Management: The Path to Solvency II, available at: http://www.fsa.gov.uk/pubs/discussion/dp08_04.pdfGoogle Scholar
Francis, L.A.,(2005). Dancing With Dirty Data, Methods for Exploring and Cleaning Data (article published in the Casualty Actuarial Society Forum, Winter 2005 issue) http://www.casact.org/pubs/forum/05wforum/05wf198.pdfGoogle Scholar
Frankland, R., Smith, A.D., Wilkins, T., Varnell, E., Holtham, A., Biffis, E., Eshun, S., & Dullaway, D., (2009). Modelling Extreme Market Events: A report of the Benchmarking Stochastic Models Working Party. British Actuarial Journal, 15, 99–201.CrossRefGoogle Scholar
Fulcher, G., Archer-Lock, P., Caton, R., Davies, D., Fick, T., James, G., Kam, H., Kershaw, P., Masi, L., Postlewhite, S., Skinner, J., & Wong, D., (2006). Report of the Catastrophe Modelling Working Party (presented to GIRO, September 2006), available at: http://www.actuaries.org.uk/research-and-resources/pages/general-insurance-convention-2006Google Scholar
Gibbs, S., & McNamara, E., (2007). Practical issues in ALM and Stochastic modelling for actuaries (presented to Institute of Actuaries of Australia's Biennial Convention, 23-26 September 2007), available at: http://www.actuaries.asn.au/Library/1.b_Gibbs%20McNamara.pdfGoogle Scholar
Grant, M., (2008). Data quality key to building a good CAT model (article published in Canadian Underwriter, March 2008 issue), available at: http://www.rms.com/Publications/March_08_Canadian_Underwriter_RMS.pdfGoogle Scholar
Groupe Consultatif Actuarial Europeen CEA (2007). Solvency II Glossary available at: http://www.gcactuaries.org/documents/sol2_glossary_final_160307.pdfGoogle Scholar
Groupe Consultatif (2008). No public version.Google Scholar
Heep-Altiner, M., & Hooker, N., (2008). Risk aggregation in a multi-line, multi-entity group (presented to GIRO in September 2008), available at: http://www.actuaries.org.uk/research-and-resources/pages/general-insurance-convention-2008Google Scholar
HM Treasury and Financial Services Authority (2008). Enhancing group supervision under Solvency II — a discussion paper, available at: http://www.fsa.gov.uk/pubs/discussion/hmt_fsa_solvency.pdfGoogle Scholar
International Association of Insurance Supervisors (2007). Guidance paper on The Use of Internal Models for Risk and Capital Management Purposes by Insurers, available at: http://www.iaisweb.org/__temp/2_2_7_Guidance_paper_on_the_use_of_internal_models_for_risk_and_capital_management_by_insurers.pdfGoogle Scholar
International Association of Insurance Supervisors (2008). Guidance paper no. 2.2.6 prepared by the Solvency Actuarial Issues Sub-Committee on The Use of Internal Models for Regulatory Capital Purposes, available at: http://www.iaisweb.org/__temp/15__Guidance_paper_No__2_2_6_on_the_use_of_Internal_Models_for_regulatory_capital_purposes.pdfGoogle Scholar
International Actuarial Association (2007). Measurement of liabilities for insurance contracts: current estimates and risk margins (exposure draft), available at: http://www.actuaries.org/CTTEES_RISKMARGIN/Documents/Mexico_item3b.pdfGoogle Scholar
International Actuarial Association (2004). A Global Framework for Insurer Solvency Assessment: A research report of the Insurer Solvency working Party, available at: http://www.actuaries.org/LIBRARY/Papers/Global_Framework_Insurer_Solvency_Assessment-members.pdfGoogle Scholar
ISG Expert Groups: Draft ICA Principles and Guidance (2006). available at: http://www.fsa.gov.uk/pubs/international/isgdraftica.pdfGoogle Scholar
Kelliher, P.O.J., Bartlett, D.L., Chaplin, M., Dowd, K., & O'Brien, C., (2005). Liquidity management in UK life insurance: A discussion paper, available at: http://www.actuaries.org.uk/research-and-resources/documents/liquidity-management-uk-life-insurance-discussion-paper-version-20Google Scholar
Porteus, B., & Tapadar, P., (2005). Economic capital and financial risk management for financial services firms and conglomerates (© Palgrave Macmillan 2005).Google Scholar
Senior Supervisors Group (2008). Observations on Risk Management Practices during the Recent Market Turbulence, available at: http://www.newyorkfed.org/newsevents/news/banking/2008/SSG_Risk_Mgt_doc_final.pdfGoogle Scholar
Standard & Poor's (2007). Criteria: Summary Of Standard & Poor's Enterprise Risk Management Evaluation Process For Insurers, available at: http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/2,1,6,4,1148449517749.htmlGoogle Scholar
Tripp, M.H., Chan, C., Haria, S., Hilary, N., Morgan, K., Orros, G.C., Perry, G.R., & Tahir-Thompson, K., (2008). Enterprise risk management from the general insurance perspective. British Actuarial Journal, 14, 433–525.Google Scholar
Turner, A., (2009). The Financial Crisis and the Future of Financial Regulation: Speech to The Economist's Inaugural City Lecture on 21 January 2009 available at: http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2009/0121_at.shtmlGoogle Scholar
Venter, G.G., Risk Adjusted Profitability by Business Line: How to Allocate Capital and How Not To (presented to Columbia University, (c) Guy Carpenter), available at: http://www.cap.columbia.edu/Venter.ppsGoogle Scholar