Insurance

Case studies

• Developing an internal model to calculate capital requirements

  The EU’s Solvency II directive has triggered a major change in how risk is measured and managed. Many insurers now need to develop internal models to calculate accurate capital requirements. To address this challenge, Risk Dynamics helped to develop a partial, internal model at a market-leading domestic insurer whose risk function had limited experience in modelling and validation.

  Together with the client, we designed a customized validation framework that included standardized test plans by risk type, work programs, report templates, and recommendation logs. We advised on several risk types and performed the first full validation and several cycles of periodic validations. The client’s domestic regulator approved the model, and thanks to capability-building and knowledge transfer, a small internal team now manages model validation.

• Creating a holistic framework for managing model risk

  As the insurance industry’s use of analytics grows, a holistic framework is needed to manage this emerging model risk. Risk Dynamics supported a global insurer in creating a consistent, group-wide framework to determine the extent of validation and review needed for all 30 strategic models within the firm.

  The study included a benchmarking exercise that compared the insurer’s practices to those of its peers and to market best practices. This exercise provided a full view of the insurer’s existing state and allowed us to identify areas of improvement. We combined the results with Risk Dynamics’ model risk management framework to create a tailored, enhanced framework that won buy-in at the management level. Then, through knowledge transfer, we empowered internal staff to lead key aspects of the framework’s implementation.