Subsection 3: Internal model

Insurance and reinsurance undertakings shall accompany any application for approval of an internal model with documentation demonstrating that the model meets the requirements set out in Articles R. 352-18 to R. 352-23. Insurance and reinsurance undertakings may use partial internal models to calculate one or more of the following: a) One or more of the risk modules or sub-modules of the Basic Solvency Capital Requirement referred to in Articles R….

A partial internal model shall be approved by the Autorité de contrôle prudentiel et de résolution only where it meets the requirements set out in Article R. 352-13 and the following conditions: a) Its limited scope is duly justified by the undertaking concerned; b) The resulting Solvency Capital Requirement better reflects the risk profile of the undertaking concerned and, in particular, meets the requirements set out in Articles L. 352-1,…

As part of the initial approval procedure for an internal model, the Autorité de contrôle prudentiel et de résolution approves the written policy for changes to the company’s internal model. The undertakings concerned may modify their internal model in accordance with this policy. This policy includes a specification of minor and major changes to the internal model. Major modifications to the internal model, as well as changes to this policy,…

Once approval has been sought in accordance with Article L. 352-1, insurance and reinsurance undertakings shall not revert to the standard formula for calculating their Solvency Capital Requirement or any part thereof, except in duly justified circumstances and subject to the approval of the Autorité de contrôle prudentiel et de résolution.

If, after having received the necessary approval from the Autorité de contrôle prudentiel et de résolution for the use of an internal model, an insurance or reinsurance undertaking ceases to comply with the requirements set out in Articles R. 352-18 to R. 352-23, it shall without delay submit to the Autorité de contrôle prudentiel et de résolution a plan for returning to compliance with those requirements within a reasonable period…

Insurance and reinsurance undertakings shall demonstrate to the Autorité de contrôle prudentiel et de résolution that they make extensive use of their internal model and that it plays an important role in their system of governance, in particular: a) in their risk management system referred to in Article L. 354-2 and in their decision-making processes; b) in their processes for assessing and allocating economic capital and solvency capital, including the…

I.-The internal model and, in particular, the calculation of the probability distribution underlying it satisfy the criteria set out in 1° to 8° of this article. 1° The methods used to calculate the probability distribution forecast are based on adequate, applicable and relevant actuarial and statistical techniques and are consistent with the methods used to calculate prudential technical provisions in accordance with Section II of Chapter I of this Title….

Insurance and reinsurance undertakings may, for internal modelling purposes, refer to a time horizon or use a risk measure other than those provided for in Article R. 352-2, provided that the results produced by their internal model enable them to calculate the Solvency Capital Requirement guaranteeing policyholders, policyholders and beneficiaries of contracts a level of protection equivalent to that provided for in Article R. 352-2. Where possible, undertakings shall determine…

At least once a year, insurance and reinsurance undertakings shall examine the origins and causes of the profits and losses recorded by each of their major operating units. They shall demonstrate to the Autorité de contrôle prudentiel et de résolution how the categorisation of risks used in their internal model explains the origins and causes of these profits and losses. The categorisation of risks and the allocation of profits and…

Insurance and reinsurance undertakings shall implement a regular model validation cycle, which includes monitoring the functioning of the internal model, checking the ongoing appropriateness of its specifications, and comparing the results it produces with data derived from experience. The model validation process includes an effective statistical process for validating the internal model, enabling insurance and reinsurance undertakings to demonstrate to the Autorité de contrôle prudentiel et de résolution that the…