Gaining comfort: Capital model validation for insurers

November 2008

Economic capital and other risk-based capital models are becoming an increasingly important part of the decision-making and performance management toolkit within the insurance industry. Record losses from the 2005 windstorm season and this year's escalating financial turmoil has shaken market confidence in risk models across the financial services sector. So how can insurers ensure their model is credible? And, convince their stakeholders too?

This paper outlines some of the practical considerations that we believe can significantly help to strengthen the performance and credibility of the model evaluation process. It sets out key challenges for the board and covers:

Standards to validate against
Verifying data and assumptions
Robust governance and documentation
Effective integration, embedding and usage

Contacts

Rebecca Pratley

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