The European Insurance and Occupational Pensions Authority (EIOPA) published today the results of its yearly study on the modelling of market and credit risk in internal models.
The study focuses mainly on EUR denominated instruments, while also looking into selected GBP and USD denominated instruments as well as the corresponding foreign exchange rate indices. The analysis covers close to 100% of the EUR investments of undertakings that have an approved internal model covering market and credit risk in the EEA, which corresponds to a sample size of 23 participants from eight member states.
The report reveals moderate to significant dispersion in some model outputs. For the combined market and credit risk charge, some results show sizeable variation between undertakings, part of which is attributable to different risk management preferences.
Further analysis examined credit risk charges for sovereign bonds, equity risk, property risk and the extent to which insurers consider sustainability in their modelling approach. Dependency structures and inflation modelling were also studied.
The study was run by a joint project group of national competent authorities and EIOPA. It provides an up-to-date overview of modelling approaches and an insight into the presumed causes of dispersion in model outputs. Its findings will help further develop supervisory tools and foster common supervisory practices.
EIOPA launched another year-end 2021 survey on 14 January 2022, the results of which will be published in early 2023.