internal model approval process

FSA Letter on Monitoring Ongoing Appropriateness of Solvency II Internal Models

On 18 June 2012 the FSA published a letter (dated 13 June 2012) from Julian Adams, FSA Director of Insurance, to firms involved in the FSA’s internal model approval process (IMAP) in preparation for the implementation of the Solvency II Directive. Letter.

The letter sets out the FSA’s thinking on how it will monitor the ongoing appropriateness of internal models after approval. Highlights include:

• The FSA expects firms to have systems and controls in place to ensure that the internal model operates properly on a continuous basis at all times, including stressed market conditions.

• The FSA is developing a number of early warning indicators (which may take the form of ratios or ranges) to help it and firms ensure that, after approval, internal models and the solvency capital requirement (SCR) calculation remain appropriate.