Market and Credit risk contribute significantly to the solvency capital requirement (SCR) of insurers and their internal models used to calculate SCR. On 22 May, EIOPA published a report summarising its findings from a European wide comparative study undertaken in 2016/2017 of market and credit risk in internal models based on year-end development tools with the aim of fostering common supervisory practices.
EIOPA's key finding was that there were significant variations in asset model outputs, but that more detailed scrutiny of asset types was required to explore the underlying causes. According to EIOPA the report is the first step in an ongoing process of monitoring and comparing internal market and credit risk models. It also intends to perform regular studies on the market and credit risk modelling in internal models starting from year-end 2017. The year-end 2017 version of the study will focus on risk charges for benchmark portfolios under the combined market and credit risk.
EIOPA's report is here.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.