Insurance Non-Executive Directors


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

Model Scope

  • 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)
  • Pricing
  • 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?

Ongoing review

  • 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?


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