EIOPA published the technical specifications, including instructions, for the market and credit risk modeling comparative study for year-end 2019. The instructions provide directions to the insurance undertakings participating in the annual, Europe-wide comparative study on the internal modeling of market and credit risk on financial instruments. In this edition, the study will include a focus on the interest rate risk modeling. Insurance undertakings using an internal model covering market risk and holding material exposure to the Euro-denominated investments are expected to take part in the study. Participants are required to submit the relevant information to their national supervisory authorities by May 31, 2020. The national authorities, in turn, must report this information to EIOPA by June 30, 2020.
Market risk contributes significantly to the overall solvency capital requirement (SCR) of insurance undertakings. The key objective of this study is to compare risk charges for a selection of asset portfolios to be used as a tool for the supervisory review of internal models. The study also aims to highlight the causes of potential differences between internal models by analyzing risk charges for individual asset classes such as fixed income or equity. Appendix 1 to the instructions provides an overview on which response templates have to be filled in for which model types. Participants are requested to follow the instructions for filling out the data request, using the provided answer templates.
The previous editions of this study targeted the combined market and credit risks, with the ambition to resolve some shortcomings and to improve the tools to reflect the typical model choices encountered in practice. The comparative study for year-end 2019 is largely based on the previous edition. A section (Section IV.1 ) of the instructions document explains the changes from the study for year-end 2018 to the current study. EIOPA expects to publish the conclusions of the study within one year following the end of the data collection, in an aggregated form, to avoid the identification of individual participants.
Keywords: Europe, EU, Insurance, Securities, SCR, Market Risk, Credit Risk, Solvency II, Interest Rate Risk, Internal Model, Financial Instruments, EIOPA
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