85% of insurers plan to use internal models
A QIS5 survey has revealed understanding risk is a major concern for insurers.
The Towers Watson survey found a third of insurers believe their investors still do not understand their risk appetite.
Towers Watson director Colin Murray, said: "Risk appetite appears to remain an underdeveloped aspect of many insurers' response not only to the external demands of rating agencies and regulators, but also in relation to achieving a strong foundation for strategic decision making.
"A clearly articulated risk appetite has become essential for businesses to achieve a higher rating and attract investors, which makes it a potential source of real competitive advantage," Murray added.
The survey also revealed:
- 85% of insurers are responding to Solvency II with plans to make use of their own internal models for regulatory purposes.
- Almost half (49%) considered the main benefit of an internal model to be for business purposes, such as for Solvency II, IFRS, and wider business decision making.
- The main challenges for an internal model were perceived to be resources (28%), followed by data issues (22%).
- The majority of insurers identified the risk margin to be the most difficult aspect of the Solvency II balance sheet (67%) to calculate, followed by determining the best estimate (13%).
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