In this speech David Rule discusses insurance models and the growing importance of model risk management. He describes some recent findings from the Prudential Regulation Authority (PRA)’s work to guard against weakening over time of capital requirements calculated from internal models – so-called ‘model drift’.
David also highlights some of the PRA’s expectations for how models are used by insurers’ senior management and boards. Insurers should be confident enough to use their models but not overconfident and misuse them.
Model use and misuse