The Intermediate Model for the Solvency of a Financial Institution

12 Pages Posted: 4 Sep 2014 Last revised: 13 Jun 2015

See all articles by Jan Dhaene

Jan Dhaene

Katholieke Universiteit Leuven

Yaniv Zaks

Zaks Finance

Date Written: June 12, 2015

Abstract

The regulator that is required to approve the statistical model and its parameters relies on the data that the insurance company provides. In case the regulator approves the model, he has some responsibility for it. The inability to validate the model, due to lack of resources or lack of understanding, causes the regulator to reject the proposed internal model and to ask the company to work with the standard model. This issue raises mainly in a small financial institutions and in a small line of business at big financial institutions. To overcome this conflict, we suggest the financial institution to follow an intermediate model, which is a weighted average of the internal model and the standard one.

Keywords: Solvency II, Basel II, IRB, Risk Management

JEL Classification: A10

Suggested Citation

Dhaene, Jan and Zaks, Yaniv, The Intermediate Model for the Solvency of a Financial Institution (June 12, 2015). Available at SSRN: https://ssrn.com/abstract=2491426 or http://dx.doi.org/10.2139/ssrn.2491426

Jan Dhaene

Katholieke Universiteit Leuven ( email )

Naamsestraat 69
Leuven, 3000
Belgium

Yaniv Zaks (Contact Author)

Zaks Finance ( email )

Israel

HOME PAGE: http://www.zaks.finance

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