On 22 May 2018, the European Insurance and Occupational Pensions Authority (EIOPA) published its first comparative study on market and credit risk modelling.
EIOPA says that market and credit risk contribute significantly to the solvency capital requirement of insurance undertakings and is also important for the majority of internal model undertakings. In 2016/17 EIOPA and several national competent authorities started a European-wide comparative study of market and credit risk in internal models based on year-end 2015 data, aimed at the development of tools and to foster common supervisory practices. The study focused on EUR denominated instruments and consisted of 14 participants from seven different Member States covering 95% of the Euro investments (excluding unit-linked assets) held by all undertakings with an approved internal model covering market and credit risk in the EEA.
The results of the study show significant variations in asset model outputs, partially resulting from model specificities, which indicates the need for further supervisory actions. EIOPA says the study is a first step in an ongoing process of monitoring and comparing internal market and credit risk models. It has decided to perform regular studies on the market and credit risk modelling in internal models starting from year-end 2017. The year-end 2017 version of the study will again focus on risk charges for benchmark portfolios under the combined market and credit risk.