EIOPA’s year-end 2021 study on market and credit risk modelling reveals continuing dispersion

EIOPA conducts its annual European-wide comparative studies on the modelling of market and credit risks since 2021 and published its YE2021 Comparative Study on Market and Credit Risk Modelling.
This report summarizes the key findings from the market and credit risk comparative study (MCRCS) performed in 2022 by a joint project group of National Competent Authorities (NCAs) and EIOPA, based on year-end 2021 data. The report gives an overview of the supervisory initiatives that will be taken based on the conclusions of the study, which was performed by a joint project group of National Competent Authorities (NCAs) and EIOPA. The study was carried out on undertakings with significant exposure to assets denominated in Euro and an approved internal model covering market and credit risk. It is notable that the 20 participants from 7 different Member States cover almost 100% of the EUR investments which are held by all undertakings with an approved internal model covering market and credit risk in the EEA (excluding UK).
The objective of the study was to ensure a consistent and regular collection of information to carry out comparative studies on internal model outputs efficiently, have an up-to-date overview of the modelling approaches, develop supervisory tools, and foster common supervisory practices. The study focused on drivers of the value of investments, not the overall Solvency Capital Requirement (SCR). The report presents results under combined market and credit risk at the level of benchmark portfolios, supplemented with a drill-down analysis of facets of market and credit risk. The study found that there are two main approaches used by undertakings to model market and credit risk: integrated approaches and modular approaches. The sample size of the study was not large, and the report should not be regarded as calibration targets.
Based on simplified asset-liability-portfolios, the overall results of the study show moderate to significant dispersion in the results of the asset value models, which are partly due to model and business specifics already known to the respective national competent authorities, but also point to further need for supervisory review.