Answers to the European Commission on the ... - Eiopa - Europa
Answers to the European Commission on the ... - Eiopa - Europa
Answers to the European Commission on the ... - Eiopa - Europa
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• Qualitative requirements for <str<strong>on</strong>g>the</str<strong>on</strong>g> use of an internal model within<br />
<str<strong>on</strong>g>the</str<strong>on</strong>g> risk management of an undertaking, especially such<br />
requirements for <str<strong>on</strong>g>the</str<strong>on</strong>g> use of partial models.<br />
• The use of principle-based valuati<strong>on</strong> criteria, ra<str<strong>on</strong>g>the</str<strong>on</strong>g>r than<br />
prescriptive rules. Peer-review am<strong>on</strong>g supervisors is needed <str<strong>on</strong>g>to</str<strong>on</strong>g><br />
ascertain harm<strong>on</strong>isati<strong>on</strong> of regula<str<strong>on</strong>g>to</str<strong>on</strong>g>ry practices, which is dealt<br />
with in answer <str<strong>on</strong>g>to</str<strong>on</strong>g> CfA 17.<br />
• If <str<strong>on</strong>g>the</str<strong>on</strong>g> undertaking would enjoy benefits from <str<strong>on</strong>g>the</str<strong>on</strong>g> approval of <str<strong>on</strong>g>the</str<strong>on</strong>g><br />
internal model, <str<strong>on</strong>g>the</str<strong>on</strong>g>n it risks losing its benefits when it 'overoptimizes'<br />
its calculati<strong>on</strong>s in areas that are difficult <str<strong>on</strong>g>to</str<strong>on</strong>g> measure<br />
and validate.<br />
• If <str<strong>on</strong>g>the</str<strong>on</strong>g> SCR-target criteri<strong>on</strong> were <str<strong>on</strong>g>to</str<strong>on</strong>g> be calibrated <str<strong>on</strong>g>to</str<strong>on</strong>g> a level such<br />
that it would be anticipated that most reas<strong>on</strong>ably well-capitalized<br />
undertakings would in any event have available capital above <str<strong>on</strong>g>the</str<strong>on</strong>g><br />
fair, internal SCR-estimate, 97 <str<strong>on</strong>g>the</str<strong>on</strong>g>n <str<strong>on</strong>g>the</str<strong>on</strong>g> motivati<strong>on</strong> for gaming <str<strong>on</strong>g>the</str<strong>on</strong>g><br />
system would be reduced.<br />
C<strong>on</strong>ceptual Framework<br />
11.14 An important aspect <str<strong>on</strong>g>to</str<strong>on</strong>g> c<strong>on</strong>sider is <str<strong>on</strong>g>the</str<strong>on</strong>g> degree <str<strong>on</strong>g>to</str<strong>on</strong>g> which internal models<br />
will be specified by <str<strong>on</strong>g>the</str<strong>on</strong>g> supervisor. In this c<strong>on</strong>text, it is useful <str<strong>on</strong>g>to</str<strong>on</strong>g><br />
distinguish between<br />
• internal models in a narrower, quantitative, statistical sense;<br />
• internal models in a wider, risk management sense; and<br />
• <str<strong>on</strong>g>the</str<strong>on</strong>g> capital requirement that is derived from <str<strong>on</strong>g>the</str<strong>on</strong>g> informati<strong>on</strong> that<br />
<str<strong>on</strong>g>the</str<strong>on</strong>g> actuarial model provides.<br />
Internal model<br />
Actuarial model<br />
exposure<br />
data<br />
* where necessary<br />
risk management<br />
functi<strong>on</strong><br />
risk driver<br />
data<br />
forecast P&L<br />
distributi<strong>on</strong>s<br />
97 This opti<strong>on</strong> is not acceptable <str<strong>on</strong>g>to</str<strong>on</strong>g> some CEIOPS’ members.<br />
Capital requirement<br />
initial<br />
estimate<br />
of SCR<br />
formulaic<br />
recalibrati<strong>on</strong>*<br />
Pillar I<br />
SCR<br />
discreti<strong>on</strong>ary<br />
adjustment following<br />
supervisory review*<br />
Pillar I<br />
SCR +<br />
Pillar II<br />
add-<strong>on</strong><br />
117