Case Study: Solvency II Internal Models
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A client needed to work
out whether it should be seeking to adopt a full or partial internal model when
calculating the Solvency II SCR. Nematrian was asked by the client to estimate
the impact of the standard formula SCR using latest available guidance on what
the standard formula might involve.
Because the calibrations
proposed by the regulators changed several times, Nematrian re-computed its estimates
as new guidance became available. The results indicated the sensitivity of the
position to whatever rules would eventually be put in place under Solvency II.
They also indicated the main risk areas for the client and the areas where use
of a partial or full internal model might alter materially the client’s overall
SCR. This helped the client to decide whether to try to implement an internal
model (and of what sort) and if so when to do so.
The overall conclusion
reached was that the effort involved in adopting a formal internal model would
be disproportionate relative to the benefits that might accrue from doing so.
However, the lessons learnt were incorporated in a more informal manner in the
firm’s subsequent (internal) individual (economic) capital assessments.
If you would like to
discuss how Nematrian could help you with Solvency II or implement internal
models then please contact Malcolm Kemp at SolvencyII@nematrian.com.
Related material available via
Some of the analytics
used by Nematrian to carry out these calculations have been packaged into web
service functions accessible via the Nematrian Extensions part of the Nematrian
website, see Nematrian
Solvency II Tools.