Tue 14 Nov 2023 - Solvency II requires that firms with internal models derive the solvency capital requirement directly from the probability distribution forecast generated by the internal model. Several UK insurance undertakings do this via an internal model consisting of proxy models and a copula for aggregation.
Since 2016 there have been a number of industry surveys on the application of these models. The 2019 PRA-led industry-wide thematic review identified several areas of enhancement. This concluded there was currently no uniform best practice.
While there have been many competing priorities for insurers since 2019, the working party expects some firms to be in one of two scenarios. They will either have already made changes to their proxy modelling approach in light of the PRA survey, or will have plans to do so in the coming years.
This paper takes the PRA feedback into account and explores potential approaches to calibration and validation. It considers the different heavy models used within the industry and relative materiality of business lines.
You can watch the recording of this webinar on the IFoA's Virtual Learning Environment (VLE). Watch recording.
Consideration of the Proxy Modelling Validation Framework (1.94 MB PDF)
Maynard is an IFoA Fellow and a Senior Manager in the life actuarial practice at KPMG. Maynard has over 15 years of experience in financial services covering both industry and consulting experience.
Maynard’s experience is primarily helping clients either build or validate economic capital models including risk calibrations, proxy modelling, and dependency modelling. Maynard has a particular interest in the application of modern analytical techniques to both new and old actuarial problems.
Matthew is a Senior Consultant within the insurance and financial services practice at Hymans Robertson. He has 8 years of experience, with roles in industry and consulting. Since joining Hymans Robertson in 2019, he has worked on a variety of client assignments with a particular focus on managing and modelling market risks. He has worked across all types of life insurance products in line 1, line 2, and line 3 roles.
Matthew also leads Hymans Robertson’s industry-wide benchmarking surveys on the matching adjustment and LPI inflation risk. Both of these cover all 8 of the current UK BPA firms. He has also worked with several smaller UK-based insurers and has been seconded to a large overseas insurer.
Before joining Hymans Robertson, Matthew worked in the actuarial reporting team at Standard Life. He qualified as Fellow of the IFoA in 2020 and holds Chartered Enterprise Risk Actuary accreditation.
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