Solvency II Internal Models solution

CD Financial Technology (CDFT) has implemented a full-scale Solvency II Internal Models solution (analyses and reporting) for use by all types of insurance companies.

The solution builds on path Monte Carlo simulation capabilities inherent in our R/V Platform. All key factors driving revenues, costs and risks of both underwriting and investment activities can be simulated as stochastic processes over any planning horizon. The impacts on regulator-specified and internal risk measures can be determined and reported. Additionally, P&L distributions and likelihoods of desired capital ratios can be established for any time horizon. Thus conditions that could potentially lead to a requirement for new capital can be identified.

Specifically, from the regulatory perspective (ORSA) both the Minimum Capital Requirement (12 month 85% confidence level VaR loss) and the Solvency Capital Requirement (12 month 99.5% confidence level VaR loss) can be reported on investment and underwriting risks of an insurance company. This reporting can easily be produced on different units and levels of organization.

Adequacy of capital over future time and business conditions can be stress tested by simulating the paths of risk factors driving results of the company. By applying a large number of simulation rounds (e.g. 10 000 – 100 000) rather reliable results can be acquired on the viability of current business strategy given the capital position.

The core technology of the solution is also available for use as (a part of) an analytics engine for an in-house Internal Models solution.

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