Many life insurers
regard themselves as still having considerable work to do to
validate and document risk measures for Solvency II, according to a
Towers Watson survey.
Interest rates, credit
spreads and mortality and lapse assumptions are some of the most
challenging risks, with two-thirds of firms still looking to make
considerable progress in these areas, said the survey.
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The survey also found a
reluctance from some firms to rely too heavily on expert judgement
as part of the Solvency II calibration process.
John Rowland, global
head of life capital modelling at Towers Watson, said: “It’s not
just the Solvency II statistical quality and calibration standards
that are leading firms to revisit risk calibrations. The virtuous
circle envisaged in the Solvency II Use Test is starting to drive
firms to seek to optimise their risk profile in line with their
risk appetite, which requires more detailed analysis. Solvency II
is raising the bar for risk modelling.”
Although firms have
focused less on risk management, firms are meeting their modelling
methodology and data selection requirements. Individual risk and
documentation are well are also well developed.
Rowland added:
“Ultimately the challenge for every insurance firm is to ensure
that their internal model calibration processes produce an internal
model that is fit for purpose tailored to their own specific risk
profile.”
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