EIOPA has reported on a comparative study which it carried out on market and credit risk modelling in 2016 – 2017. This is the first such study which EIOPA has undertaken.
Market and credit risk are key factors in assessing insurers' solvency capital requirement (SCR), as well as being important for the purposes of internal modelling.
The EIOPA study was carried out in conjunction with several national competent authorities. It involved a European‑wide comparative study of market and credit risk based on year‑end 2015 data, aimed at developing tools and common supervisory practices. The study involved 14 participants from seven member states and focused on euro‑denominated instruments.
The study's key finding was that there were significant variations in asset model outputs. EIOPA has concluded that more detailed scrutiny is required, in order to explore the underlying causes.
EIOPA regards the report as the first step in an ongoing monitoring and comparison process for internal market and credit risk models. It intends to perform regular studies on the market and credit risk modelling in internal models. The next version of the study (which we be based upon 2017 year‑end data) will focus on risk charges for benchmark portfolios under the combined market and credit risk.
The full report can be viewed here.