The CRO Forum is a group of professional risk managers from the (re)insurance industry that focuses on developing and promoting industry best practices in risk management. The Forum consists of Chief Risk Officers from large multinational insurance and reinsurance companies.
This paper, which is supported by SCOR, presents the perspective and experience to date regarding the insurance industry’s use of internal models, and sets out why such use should be allowed as an important element of the risk-based global Insurance Capital Standard (ICS), which is currently being developed by the International Association of Insurance Supervisors (IAIS).
The paper outlines the options available to regulators regarding the use of internal models and takes a detailed look at the advantages they can bring. It argues that the best way to achieve optimum social and regulatory outcomes is via a regulatory regime allowing insurers to use internal models, subject to supervisory approval. It also explains how internal models can reflect company-specific risk profiles and are essential where the standard approach does not appropriately capture business and risk profiles.
