Gaining value from internal risk models? IRM’s Internal Model Industry Forum (IMIF) is publishing its seventh piece of guidance aimed at advising the insurance market how to do so. The document is called Profit and loss allocation – the road ahead.
Under the Solvency II regulatory framework, an insurer’s internal risk model is at the heart of its risk and capital evaluation. That is because it provides key input to a wide range of business and strategic decisions. For business decision makers to consider such models credible, proper validation is critical.
While insurance companies are generally producing good evidence to support the validation of models, the UK Prudential Regulation Authority (PRA) has found room for improvement.
These questions are key: How can insurers embed these internal models in the company’s decision making processes? How can they get the right visibility at board level? Finally, how can they build trust in models through a well-focused, cost-effective validation framework?
IMIF aims to tackle these questions. It is producing an industry view of the the use and validation of internal models. That includes examining the current level of maturity and best practices.
To find out more about the work of IMIF visit www.theirm.org/imif.