Pillar 1: Internal models
Under Solvency II, insurance companies have the option of using internal models for determining their solvency capital requirement (SCR). Internal models may be used only if they have been explicitly approved by the supervisory authority. Solvency II imposes strict requirements on 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. Model assessment therefore is a complex and lengthy process.
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 participate in the pre-application process. Participation in the pre-application process is of course no guarantee that models will be approved.
Who can apply?
All insurance companies are free to apply for approval of their internal models. There is no formal requirement to participate in the pre-application process. However, experience shows that applications submitted without prior participation in the pre-application process have little chance of success. Insurance companies considering to use partial internal models, would do well to discuss these with their supervisors first.
The application package comprises the following documentation.
- A covering letter signed by the group and all entities for which the internal model will be used.
- A covering document including a summary of the main information contained in the application package.
- A statement from the company's internal audit department (see Audit assurance for Solvency II internal models)
- The completed application template providing an overview of all available documents (template provided by EIOPA).
- The actual documents to which the application template refers.
- The completed self-assessment template (part of EIOPA’s application template).
How to submit the application package
The cover letter must be sent by post. The other components can be submitted electronically using DNB's e-Line application.
We start the application phase start 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. The total application process takes a maximum of six months.
Rules and regulations
DNB will assess the application package against the Solvency II rules on internal models. Click here for an overview of Solvency II rules. DNB provides additional guidance to the sector on a number of topics.
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. This also has a deadline of six months, which may be extended by two months if one of the members of the College asks EIOPA to mediate.