Model validation is one of the six key tests for model approval, however, few insurers have made much headway in model validation. Under present timetables, insurers have until April 2012 to complete the initial validation and put in place a sustainable framework if they want to have its model approved before Solvency II goes live
What approach can insurers take to ensure the validation process is effective and pragmatic?
Experience to date has highlighted the importance of dividing the model into smaller components or processes so that validation becomes more manageable and clearly defined.
It is also important to build validation around a framework that clearly demonstrates how validation activities fit into the architecture of the model and focus on the assumptions and expert judgements that underpin the capital evaluations.
The key is not to leave validation until the very end of the model development, embedding and application process and focus validation on aspects of the model with the most material impact.
The Solvency II team at PwC would be delighted to discuss this in more detail. Please contact our specialists on the right of the page.