Is a full internal model a step too far?

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The choice between an internal model and the standard formula not only has a strong influence on an insurer's capital requirements, but also the way the company is run and engages with stakeholders. It is important to regularly review the decision to make sure it continues to meet the best interests of the organisation as its business profile and market landscape evolves.  The potential for transitional measures and possibly a delayed implementation date provides an opportunity to take a step back and review this decision.

Which model is the best fit for your business?

The answer lies in which one would best optimise your statutory capital requirements relative to your risk profile. The appraisal should also take account of the cost benefit and effort entailed. As the market landscape and your business evolve, the answer may not simply be standard formula or internal model, there are many options in between and the right choice for a company is likely to vary over time.

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