On 4th January 2024, EIOPA published an internal models for non-life underwriting risk analysis (HERE). The report inspected internal models employed in the non-life underwriting activities of 75 European insurers belonging to 31 insurance groups. The primary objective was to assess differences between these internal models, to evaluate the differences between internal models to understand whether and to what extent these capture similar risks in a consistent manner.. Furthermore, the study delved into the non-life underwriting risk profiles, aiming to pinpoint the factors that impacted the allocation of risk capital during the initial five years following the implementation of Solvency II.
The study showed some conclusions on:
• Capital intensity: there are notable differences in capital intensities of undertakings with similar economic profit and loss distributions.
• Differences in risk measurement: Many undertakings with lower capital intensity were relying on uncertain future profit estimates in the calculation of their premium risk.
• Standard formula comparison: Internal model users showed significant variation and generally lower capital intensities for premium and reserve risk compared to standard formula calculations.
• Reporting: Most undertakings were well prepared for the introduction of QRTs for internal models at the end of 2023.
• Inflation: Most undertakings model inflation based on past trends and may rely on ad-hoc expert judgement when the path of inflation changes. EIOPA analysis shows that persisting moderate inflation can affect undertakings more than temporary spikes and therefore inflation risk/exposure should be monitored, as it could lead to an increase in SCR.
EIOPA and national supervisors have held individual feedback sessions with all participants. EIOPA informed that the conclusions of the study will be further addressed by the national supervision of individual undertakings and groups (e.g. in colleges of supervisors).
Undertakings identified as outliers have been notified and relevant national supervisors are currently conducting follow-up actions. Some supervisory actions have also already led to changes in internal models. EIOPA will support national supervisors on the follow up and monitor the development of the findings.