The European Insurance and Occupational Pensions Authority (EIOPA) has published the results of its year-end 2024 comparative study on how insurers’ Solvency II internal models quantify market and credit risk. Using a near-complete sample for euro-denominated investments among European Economic Area (EEA) internal model undertakings, the study finds moderate to significant dispersion in some model outputs, partly explained by model and business specificities, and flags the need for continued supervisory scrutiny, including at the European level. The analysis covers primarily EUR instruments, with selected GBP and USD instruments and associated foreign exchange indices, and compares outcomes via benchmark portfolios and instrument-level drill-downs using modelled Value-at-Risk (99.5% over a one-year horizon) expressed as a “risk charge”. Fourteen participants use integrated market-and-credit-risk approaches and eight use modular approaches, while volatility adjustment treatments vary (dynamic, constant, or not used). Dispersion is most pronounced in parts of credit spread modelling, increasing with deteriorating corporate credit quality and becoming substantial for BB-rated bonds, and is greater for several sovereign issuers (France, Ireland, Portugal, Spain and Italy) than for others (Germany, Netherlands, Austria and Belgium); USD and GBP corporate bonds show higher shocks than EUR corporates. Equity index risk charges are less dispersed than charges for strategic insurance participations, while real estate risk charges vary more widely; only one participant uses a taxonomy of sustainable activities in asset modelling and none explicitly model physical climate risks in real estate. National competent authorities will receive tailored feedback packages to support follow-up discussions with participating undertakings, and EIOPA will monitor follow-ups. The comparative study will continue annually, with a year-end 2025 cycle planned with reduced public disclosure and alternating reduced- and full-scope editions over time.
European Insurance and Occupational Pensions Authority 2026-04-16
European Insurance and Occupational Pensions Authority publishes year-end 2024 internal model study highlighting dispersion in market and credit risk outputs
The European Insurance and Occupational Pensions Authority has published its year-end 2024 comparative study on how Solvency II internal models quantify market and credit risk, finding moderate to significant dispersion in some risk charges and calling for continued supervisory scrutiny. Dispersion is most pronounced in parts of credit spread modelling, particularly for lower-rated corporate and certain sovereign bonds, and is also notable for real estate and strategic insurance participations, while equity index risk charges are less dispersed. National competent authorities will receive tailored feedback for follow-up with undertakings, and the comparative study will continue annually.