EIOPA has recently implemented three internal model consistency work streams:
Market and Credit Risk Benchmarking Study,
Modelling of Sovereign Exposures
Modelling of Dynamic Volatility Adjustment.
The Market and Credit Risk Benchmarking Study analysed relevant aspects of risk associated with interest rates, credit spread, equity and real estate and compared the calibrations of different aspects of market and credit risks of undertakings with internal models that include market and credit risks. The national competent authorities (NCAs) are currently reviewing the position of their undertakings within the benchmarking analysis to decide on follow-up actions. EIOPA plans to publish the results of this study in the first quarter 2018.
The second work stream focused on the quantitative and qualitative aspects of the modelling of sovereign exposures based on the information provided by NCAs and selected undertakings. The results show that where sovereign exposures were being modelled in an internal model, the modelling was by and large consistent with the approach taken for similar, non-sovereign instruments. The results are now being reviewed by NCAs. The follow-up of these quantitative observations is being included in the follow-up of the Market and Credit Risk Benchmarking Study. In the third work stream EIOPA analysed quantitative and qualitative aspects of dynamic modelling of the Volatility Adjustment. Different approaches were observed and follow-up discussions with NCAs are continuing with the aim towards a common view taking into account theses different approaches to modelling a dynamic VA as well as the related risk management implications.
To monitor and further enhance supervisory practices EIOPA plans to conduct comparative studies on market and credit risk monitoring annually. The data request for the next study will be launched by the end of this year.
For more information, please view the update published on EIOPA’s website.
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