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Pillar 1: Internal models

Factsheet

Under Solvency II, insurance companies have the option of using internal models for determining their solvency capital requirement (SCR). Internal models may be used for this purpose only if they have been explicitly approved by the supervisory authority. Solvency II imposes requirements on these internal models. These requirements relate to such matters as how suitable the models are for the company's risk profile, their conceptual foundations or their basic assumptions, their statistical quality, and the system of governance and use of the models. These aspects are all considered when internal models are assessed by the supervisor. Model assessment therefore is a complex, lengthy and intensive process.

Published: 11 August 2015

Pre-application

Pre-application gives both the supervisor and the insurance company the possibility of adequately preparing the formal application for assessment of an internal model. DNB therefore expects insurance companies intending to submit an application for assessment of an internal model to submit a pre-application first. Completing a pre-application is of course no guarantee that a model will be approved.

Application

Insurance companies are free to apply for approval of their internal models. Submitting a pre-application is not a formal requirement, but it increases the likelihood of approval. Insurance companies considering to use internal models, would do well to discuss these with their supervisors first.

Application package

The application package comprises the following documentation.

  • A cover letter signed by all entities for which the internal model will be used. The application must be submitted on behalf of the group (in practice, the holding company submits the application), and it must be signed by one or more members of the management or supervisory board or one or more day-to-day policymakers of the group who have some day-to-day involvement in the internal model. It must also be signed by one or more relevant members of the management or supervisory board or the day-to-day policymakers of the entities that will use the internal model. For further information, see instructions.
  • A cover letting including a summary of the main information contained in the application package.
  • A statement from the insurer's internal audit function certifying that the application is complete and meets the legal requirements.
  • The completed EIOPA application template (see EIOPA Common Application Package for Internal Models, which lists all available documents.
  • The actual documents to which the application template refers.
  • The completed self-assessment template (part of the EIOPA application template).

Applying via My DNB Supervision Services

You can submit your application via My DNB Supervisory Services. There you will find the Application form for exemption or permission – Insurers. Enter the details of your institution and then select the correct application.

Please contact your account supervisor before submitting an application.

Regulations

DNB will assess the application package against the Solvency II rules and EIPOA guidelines on internal models. Click here for an overview of these rules.  See also Implementing Regulation (EU) 2015/460. We provide additional guidance to the sector on a number of topics.

Decision

We start our consideration by verifying whether we have received the complete application package. This takes one month at the most. We will start assessing the content once we have established that we have received all components of the application package. Decisions on approval of internal models must be taken within six months. If foreign supervisory authorities are involved, the College of Supervisors will make a joint decision.

If one of the College members requests mediation from EIOPA, the deadline to take a decision is extended by one month.

Major model change

Major changes to internal models must be submitted to us for prior approval. You must describe the scope of the change and list the entities affected. The entity that requested approval to use the model must submit the request. It must be signed by one or more members of the management or supervisory board or one or more day-to-day policymakers of the entity who have some day-to-day involvement in the internal model. It must also be signed by one or more relevant members of the management or supervisory board or the day-to-day policymakers of the entities affected by the internal model. For further information, see instructions.

You can also submit your request for major model change approval by completing the Application form for exemption or permission – Insurers in My DNB Supervision services.

Please contact your account supervisor before submitting an application.

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