The Financial Supervisory Authority of Norway has published an inspection report on Assuranceforeningen Gard – Gjensidig, Gard Marine & Energy Insurance (Europe) AS and the Gard group, reviewing the governance and control framework for its Solvency II internal model and follow-up of its permission to use the model for regulatory solvency capital requirements. The authority highlights weaknesses in inflation risk treatment, parameter updating and model validation, including backtesting results for interest rates and mortgage-backed securities (MBS) that indicate possible under-reserving. Key findings include a need for a more systematic approach to inflation modelling, given uncertainty and the risk of renewed rapid inflation, and for model parameters to be updated at least annually in line with the Solvency II regulations. The report also questions calibration of dependencies between credit spreads and equities, expects clearer validation of “result elements” at module and sub-module level, and calls for escalation of validation test results outside defined intervals rather than post-hoc justification. Additional concerns include the lack of explicit modelling of MBS credit risk and reliance on assumptions of implicit US state support for FNMA and FHLMC, potential vulnerabilities from a more complex legal structure with increased intra-group agreements, insufficient separation between the model team and the validation function, and internal audit coverage that focused on a non-approved counterparty risk model rather than modules within the approved internal model. Gard is expected to test and assess the use of inflation models during 2025 and submit documentation, results and assessments once complete, and to conduct further investigations and tests for the interest rate and MBS models within the 2025 validation cycle where backtests fall outside accepted intervals. The authority will follow up the internal model permission conditions in a separate letter and requests the minutes from the board meeting in which the report is considered, and that the letter is shared with the external auditor.
Norwegian Finanstilsynet 2025-06-27
Financial Supervisory Authority of Norway calls on Gard Group to strengthen governance and validation of its Solvency II internal model
Norway's Financial Supervisory Authority published an inspection report on Assuranceforeningen Gard – Gjensidig, highlighting weaknesses in their Solvency II internal model governance. Issues include inadequate inflation risk treatment, outdated model parameters, and insufficient validation of interest rates and mortgage-backed securities. The authority calls for systematic improvements and further testing, with Gard expected to address these concerns in 2025.