EIOPAs tasks in the supervision of Internal Models

Also, in specific cases, other methods could suffice to align the risk profile to the capital requirements, such as the application of Undertaking Specific Parameters, capital add-ons, change in risk profile, or even pillar II measures.

The use of an internal model for the calculation of the SCR of an insurance undertaking (or an insurance group) is subject to supervisory approval. The application of these models should not only better capture the underlying risk profile, but also improve the risk management system.

Solvency 2 allows for flexibility to develop an internal model, for instance on i) the number of risks in scope, ii) how dependencies between risks are modelled, and iii) the use of expert judgement, especially where sufficient empirical data is lacking.

This flexibility also creates challenges for both EIOPA and national supervisors. EIOPA faces additional challenges, as one of its strategic goals is to improve supervisory convergence. On the one hand, EIOPA is not a direct supervisor, therefore access to data and documentation is more difficult. On the other hand, EIOPA carries out supervision at European level, confronting diversity of national markets and risk taxonomy. Finally, the fairness between internal models and standard formula must also be taken into account.

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