EIOPA published the results of the first study on the modeling of market and credit risks in the insurance sector. This report summarizes the key findings from the study undertaken in 2016-2017 and provides an insight into the supervisory initiatives being undertaken following the conclusions of this study.
The results show significant variations in asset model outputs, partially resulting from model specificities, which indicates the need for further supervisory intervention. However, this report should be considered as a first step in an ongoing process of monitoring and comparing internal market and credit risk models. This will be complemented by further refinements and developments in the future and the results, tools, and experience will feed into the Supervisory Review Process on internal models and vice versa. The findings also indicate the need for further supervisory scrutiny, including at the European level. Consequently, EIOPA has decided to perform regular annual studies to further develop supervisory tools and foster consistency of supervisory approaches.
Market and credit risks contribute significantly to the solvency capital requirement of insurance undertakings and are of material importance for the majority of internal model undertakings. Consequently, with the first official Solvency II reporting, a project group of several national competent authorities and EIOPA started a Europe-wide comparative study of market and credit risks in internal models based on the year-end 2015 data, aiming for a systematic stock take, the development of tools, and to foster common supervisory practices.
Keywords: Europe, EU, Insurance, Solvency II, Market Risk, Credit Risk, Internal Models, EIOPA
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