Why insurance regulators need to require sensitivity settings of internal models for their approval

Emanuele Borgonovo, Gian Paolo Clemente, Giovanni Rabitti*

*Autore corrispondente per questo lavoro

Risultato della ricerca: Contributo in rivistaArticolo in rivista

Abstract

According to the Solvency II directive, insurers can use internal models for solvency assessment, but regulators must approve these models. Sensitivity analysis is a crucial part of the approval process. However, the directive lacks clarity on the required sensitivity analysis. Various techniques exist in literature to assess the impact of model assumptions on output, each revealing different aspects of model behaviour. In this letter, we suggest a minimum standard for regulators to ensure model quality. We propose complementary sensitivity settings for internal model development, governance, and approval. Implementing these settings enhances the explainability of approved models and their reliability.
Lingua originaleEnglish
pagine (da-a)1-11
Numero di pagine11
RivistaFinance Research Letters
Volume60
DOI
Stato di pubblicazionePubblicato - 2024

Keywords

  • Explainability
  • Model governance
  • Uncertainty and Sensitivity settings

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