Capital models – transforming model complexity into business insight
Willis Towers Watson Risk Consulting team
Rob Collinson, Mike Wilkinson, Paul Hewett, Kirsty Gray, Sanjiv Chandaria
The key roles of the NED
- Level of detailed knowledge required is less onerous than for Execs and modelling team
- But must be sufficient to enable NEDs to offer insight informed by their own wider experience
- Should expect support consistent with particular person’s background
- Play a key role to ensure that the model is fit for purpose
- NEDs offer unique challenge to established wisdom
- Offer questions from a wider perspective
- NEDs have permission to ask the unaskable
- Oversight of real and meaningful use
- Balance of model and experience insight
- Qualification also applies to use
- What could/should the model do better?
- What have you seen elsewhere?
- How could the model be improved for the future?
Ask the unaskable
- What is the scope of the firm’s internal model – what risks/entities does it cover/not cover?
- Where risks are not captured in the internal model, are they dealt with adequately in the firms ORSA?
Key features of the model
- What are the model’s key strengths, weaknesses and limitations?
- Where does the model work well / work badly
- What are the key assumptions that underlie the model? How has the Board been involved in assessing these?
- How sensitive is the model output to these key assumptions?
- Does the output of the model give a credible answer
Use of the model
- For what purposes does the firm use (or plan to use) the internal model? Possible examples include:
- Capital planning (e.g. future dividend capacity)
- Reinsurance decisions
- Mergers & acqusition
- Has the Board been involved in agreeing the design of the validation work?
- Who has independently reviewed the model apart from the model developers?
- What were the key conclusions of the last validation report?
- Does the validation report give the Board a good summary understanding of the key strengths / weaknesses / limitations of the model and whether it meets S2 requirements?
- Is the Board tracking actively how key validation issues are being addressed?
- How will the Board review ongoing model appropriateness (e.g. as the business changes, or as new risks or data emerge)?
- How will the Board be involved in decisions on major changes to the internal model?
- What feedback has been given previously given by the PRA and how this has been addressed by the firm?
- What contingency plans exist if model approval is not granted? Can the firm survive on the Standard Formula or would it need to take other mitigating actions?
Delegates wishing to view the complete gallery of the day are invited to visit www.stephanerocher.co.uk