Coverage of all material risks

1. For the purposes of the third subparagraph of Article 121(4) of Directive 2009/138/EC, insurance and reinsurance undertakings shall assess, at least on a quarterly basis, whether the internal model covers all material quantifiable risks within its scope. The assessment shall take into account an appropriate set of qualitative and quantitative indicators.

2. The qualitative indicators referred to in paragraph 1 shall include the following:

(a) the identification in the own risk and solvency assessment of risks other than those that are covered by the internal model;

(b) the existence of a dedicated risk management process for risks other than those that are covered by the internal model;

(c) the existence of dedicated risk mitigation techniques for risks other than those that are covered by the internal model.

3. The quantitative indicators referred to in paragraph 1 of this Article shall include the following:

(a) the capital allocation in accordance with Article 120 of Directive 2009/138/EC;

(b) the amount of profits and losses which cannot be explained by the risks covered by the internal model;

(c) the results of stress testing and scenario analysis and any tool used in the model validation process.