EIOPA publishes study on diversification between risks in internal models

Written by Adam Cadle

24/01/2024

EIOPA has published a comparative study looking at diversification in the internal models of insurers and found that different models for the aggregation of risks lead to a sizeable dispersion in the capital requirements even for undertakings with similar business profiles.

The study provides an overview of the current modelling approaches and equips NCAs with elements of a European sector-wide comparison as well as various diversification indicators that are intended to support and complement the work of national supervisors when monitoring the on-going compliance of internal models.

The analysis found that diversification in internal models is determined by at least four main factors: the delineation of the risks that are to be aggregated, the risk profile, the aggregation approach and the way that dependencies between risks are determined to set up the aggregation approach.

EIOPA said the overall findings "confirm the need for continuous supervisory scrutiny both at the local and European levels”.

Related Articles