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Statistical Quality Standards

Page 2. . Procedure for the approval of an internal model. . . CEIOPS. . Pre -application. Application. Assessment. Decision. . 6 months. Page 3. . . Pre-application. . . CEIOPS. Level 3 Guidance on pre-application published for consultation until 8 March 2010Designed to be flexible, to meet requirements of each specific modelUndertakings engage with supervisors while developing and implementing their internal models, and early view on their preparedness to app9440

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Statistical Quality Standards

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    1. Page 1 Solvency II – Internal Models Ian Marshall Cape Town, 5 March 2010

    2. Page 2

    3. Page 3 Pre-application Level 3 Guidance on pre-application published for consultation until 8 March 2010 Designed to be flexible, to meet requirements of each specific model Undertakings engage with supervisors while developing and implementing their internal models, and early view on their preparedness to apply Undertakings will understand at an early stage how supervisor propose to approach assessment Participation does not guarantee approval undertakings should consider contingency planning in case the model is not approved

    4. Page 4 Key points – Aplication/Assessment Application to include documentation to show that the model meets tests and standards required from the model Completeness of application: 6 month period starts when the complete application is received Completeness of application should be defined in an objective way Once application received, supervisors shall assess completeness If not completed, supervisor shall notify 6 months has not begun Assessment by supervisor: On-going communication, may include request for further information from undertakings Possibility of suspension of 6 months in case adjustments needed Right to withdraw application by undertakings

    5. Page 5 Key points – Application: Policy for model changes

    6. Page 6 Key points – Decision

    7. Page 7 Tests and standards for internal models

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    10. Page 10 Statistical Quality Standards General building blocks (risks, data, assumptions&methodology,…) and specific building blocks (F&G, Management actions)General building blocks (risks, data, assumptions&methodology,…) and specific building blocks (F&G, Management actions)

    11. Page 11 Statistical Quality Standards Principle: Freedom of methods for internal modelling, but Methods used to calculate the probability distribution forecast: onus on the undertaking to justify methods and assumptions. Data: policy established by undertaking; use of expert judgment allowed, if there is a robust process for setting the expert judgment. Diversification effects: identification of key variables driving dependencies, justification of assumptions; take into account tail dependence and extreme scenarios, and characteristics of the risk measure used in internal model. Coverage all material risks: undertakings shall demonstrate that all material quantifiable risks are covered. Sheet for motivation: why imposing standards on the construction of a model and not permitting ultimate freedomSheet for motivation: why imposing standards on the construction of a model and not permitting ultimate freedom

    12. Page 12 Calibration Standards Sheet for motivation: why imposing standards on the construction of a model and not permitting ultimate freedomSheet for motivation: why imposing standards on the construction of a model and not permitting ultimate freedom

    13. Page 13 Profit and Loss attribution, Validation

    14. Page 14 Documentation, External models and data

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    17. Page 17 Links CEIOPS’ Advice on the procedure to be followed for the approval of an internal model http://www.ceiops.eu/media/files/consultations/consultationpapers/CP37/CEIOPS-L2-Final-Advice-Procedure-approval-internal-model.pdf CEIOPS’ Advice on Tests and Standards http://www.ceiops.eu/media/files/consultations/consultationpapers/CP56/CEIOPS-L2-Advice-on-Tests-and-Standards-internal-model-approval.pdf CEIOPS’ Advice on Partial Internal models: http://www.ceiops.eu/media/files/consultations/consultationpapers/CP65/CEIOPS-L2-Advice-Partial-Internal-Models.pdf CEIOP’S Consultation Paper 80: L3 Guidance on pre-application: http://www.ceiops.eu/index.php?option=content&task=view&id=702 CEIOPS’ Stock-take Report on the use of internal models in insurance: http://www.ceiops.eu/media/files/publications/reports/Stock-taking-report-on-the-use-of-Internal-Models-in-Insurance.pdf CEIOPS’ Paper on Lessons learnt from the crisis: http://www.ceiops.eu/media/files/publications/reports/CEIOPS-SEC-107-08-Lessons-learned-from-the-crisis-SII-and-beyond.pdf

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