Regulatory Alerts2015-12-31
Added · Updated
Applying the volatility adjustment in internal models
Insurers using internal models under Solvency II may apply either a constant or dynamic volatility adjustment, provided they satisfy specific modelling, risk management, and disclosure conditions. DNB assesses these applications case-by-case, requiring insurers to justify estimates, model sovereign risk exposures fully, and validate their approaches against granular source analysis. Insurers must also demonstrate that their risk management includes incentives for good practice and report the sensitivity of technical provisions and own funds to volatility adjustment assumptions.