PINS 3.8 Guidance

Insurers around the world use internal models for assessing their capital requirements. From an internal perspective, risk models provide an opportunity for the management to identify and measure risks. It is also possible to quantify the minimum level of capital corresponding to a given risk appetite, which in turn guides capital allocation/management. Risk models offer the advantage of combining all relevant operations of an insurer (e.g. underwriting, investment, pricing, assets, and liabilities) into an integrated model which provides an insight into future operations and capital requirements. They can also be useful for evaluating alternative business strategies and focusing on major risk scenarios, including what might happen if more than 1 thing goes wrong. If the model is well developed, an insurer would have sufficient information for assessing its major risk areas and allocating resources accordingly.

Editorial changes (as from 1 January 2015).