EIOPA Launches Study on Diversification in Solvency II Internal Models
EIOPA launched a comparative study on diversification in internal models among insurers in EU. The study comprises quantitative reporting and a qualitative questionnaire, which are accompanied by the detailed technical specifications, including examples, to adequately fill out the templates, given the bespoke internal models. Insurance undertakings are required to submit results to their group national supervisory authority by January 15, 2020 while the national supervisory authorities should report to EIOPA by January 15, 2020.
The study will be conducted in two phases to balance complexity and completeness. The first phase of the study, which starts in early October 2020, will focus on top-level risk dependencies between market, credit, life, non-life, health, and operational risks. However, the second phase of the study, in the second quarter of 2021, will assess the lower level inter-risk dependencies, to complete the understanding of diversification effects, in combination to the respective risk profiles. For undertakings applying the same correlation settings and aggregation structure as the standard formula, the first phase is limited to a subset of the qualitative questionnaire. Diversification effects depend on a variety of factors, such as the level of correlations, tail dependencies, number of risk factors, shape of underlying distributions, and the dependency structures. The modeling of dependencies and aggregation, in effect typically called diversification, within internal models has a significant impact on the overall solvency capital requirement (SCR) of insurance undertakings. This study is intended to
- gain an overview of the current approaches in the market and, on a best effort basis, analyze and compare the levels of diversification.
- facilitate a better understanding of modeling dependencies, aggregation, and the resulting diversification benefits.
- enhance quality and convergence of supervision on diversification in internal models.
Related Links
- Press Release
- Quantitative Reporting Template (XLSX)
- Qualitative Questionnaire (DOCX)
- Technical Specifications (DOCX)
Keywords: Europe, EU, Insurance, Internal Models, Solvency II, SCR, Solvency Capital Requirement, EIOPA
Featured Experts

Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist

Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist

Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Previous Article
EC Proposes to Prolong and Adjust State Aid Temporary FrameworkNext Article
ESMA Publishes Work Program for 2021Related Articles
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
EBA Updates Lists of Entities for Use in Capital Calculations under SA
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
MAS Amends Notice on Related Party Transactions of Banks
MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.
ECB Amends Guideline on Euro Short-Term Rate
ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.
EBA Consults on Standards Related to FRTB-SA
EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).
PRA Proposes Rules Related to IRB Approach for Credit Risk
PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.
BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK
The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.
FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks
FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.
OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks
OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.
EU Amends CRR and Securitization Regulation in Response to Pandemic
To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).