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30 May 2013

Risk.net: EIOPA developing early-warning indicators to monitor internal models


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Indicators are needed to identify situations where a firm's model no longer meets Solvency II calibrations, says EIOPA.


EIOPA has put together a working group to develop non-modelled indicators that national supervisors can use. The authority's internal models committee is expected to discuss the proposals in the autumn.

An EIOPA spokesperson says the work will develop quantitative and qualitative indicators to identify situations where a firm's internal model no longer meets Solvency II standards. "The main benefit of the indicators is that they will identify firms or areas of a model where further investigation or action might be needed, allowing supervisors to prioritise their work", the spokesperson says.

EIOPA's focus on early-warning indicators comes as some national supervisors are expressing concerns that insurers' internal models could be used to cut solvency capital levels below regulatory requirements. The UK's Prudential Regulation Authority (PRA) last week announced its plans to start trialling its own early-warning indicators to alert supervisors to potential threats to solvency from models being used to "pare" capital requirements below Solvency II's 99.5 per cent value-at-risk threshold.

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