Solvency II: internal models - assessment, model change and the role of non-executive directors

Supervisory Statement 17/16

Update 17 October 2018: This supervisory statement (SS) was updated following publication of PS23/18 ‘Solvency II: Internal models – modelling of the volatility adjustment’.

Update 13 July 2018: This supervisory statement (SS) was updated following publication of Policy Statement (PS) 19/18 ‘Solvency II: Internal models – modelling of the matching adjustment’ and PS20/18 ‘Solvency II: Internal models update’. It was updated to reflect expectations of firms in respect to the model change process. The details of the updates can be found in the Annex to the updated SS.

Published on 25 November 2016

Overview

This supervisory statement (SS) is addressed to all UK firms that fall within the scope of Solvency II (‘the Directive’), and to Lloyd’s. It sets out the Prudential Regulation Authority’s (PRA’s) expectations of firms regarding internal models.

This statement should be read in conjunction with the PRA’s rules in the Solvency II Sector of the PRA Rulebook, the Solvency 2 Regulations 2015 (2015/575) and the PRA’s approach to insurance supervision document.

In this SS, the PRA sets out its expectations for firms in the following areas:

  • internal model applications;
  • the assessment of credit risk;
  • dealing with variability in premium provisions;
  • the effect of stresses on the volatility adjustment;
  • the role of non-executive directors;
  • model justification and validation and the role of boards;
  • the PRA’s use of quantitative analysis in approving models; and
  • scope, identification and classification, governance and reporting of internal model changes.

Date of publication

Supervisory statement 

Update details

Effective from 

Current version

17 October 2018 PDFSupervisory Statement 17/16 UPDATE - October 2018
This SS was updated following PS23/18 ‘Solvency II: Internal models – modelling of the volatility adjustment’
17 October 2018

Past versions

13 July 2018 PDFSupervisory Statement 17/16 UPDATE - July 2018
Updated following PS20/18 ‘Solvency II: Internal models update’ and PS19/18 ‘Solvency II: Internal models – modelling of the matching adjustment
13 July 2018
25 November 2016 PDFSupervisory Statement 17/16
Initial publication following Consultation Paper 11/15
25 November 2015
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