French Insurance Code
In forceI.-The internal model and, in particular, the calculation of the probability distribution underlying it satisfy the criteria set out in 1° to 8° of this article.
1° The methods used to calculate the probability distribution forecast are based on adequate, applicable and relevant actuarial and statistical techniques and are consistent with the methods used to calculate prudential technical provisions in accordance with Section II of Chapter I of this Title.
The methods used to calculate the probability distribution forecast shall be based on credible current information and realistic assumptions.
Insurance and reinsurance undertakings shall be able to justify to the Autorité de contrôle prudentiel et de résolution the assumptions underlying their internal model;
2° The data used for the purposes of the internal model shall be accurate, complete and appropriate.
The insurance and reinsurance undertakings concerned shall update at least once a year the series of data they use to calculate the probability distribution forecast;
3° No specific method is prescribed for calculating the probability distribution forecast.
Regardless of the calculation method chosen, the internal model's ability to classify risks is sufficient to ensure that it is widely used and plays an important role in the system of governance of the insurance or reinsurance undertaking concerned, and in particular in its risk management system and decision-making processes, as well as in the allocation of its capital in accordance with Article R. 352-18.
The internal model shall cover all material risks to which the insurance or reinsurance undertaking concerned is exposed. It covers at least the risks listed in Article R. 352-2;
4° With regard to diversification effects, insurance and reinsurance undertakings may take account in their internal model of the dependencies existing within given risk categories, as well as between risk categories, provided that the Autorité de contrôle prudentiel et de résolution considers the system used to measure these diversification effects to be adequate;
5° Insurance and reinsurance undertakings may take full account of the effect of risk mitigation techniques in their internal model, provided that credit risk and other risks arising from the use of risk mitigation techniques are adequately taken into account in the internal model;
6° Insurance and reinsurance undertakings shall accurately assess, in their internal model, the particular risks associated with financial guarantees and any contractual options where they are not insignificant. They shall also assess the risks associated with the options offered to the insured, the policyholder or the beneficiary of the contract, as well as the contractual options offered to insurance or reinsurance undertakings. To this end, they shall take account of the impact which possible changes in financial and non-financial conditions could have on the exercise of these options;
7° Insurance and reinsurance undertakings may take account, in their internal model, of future management decisions which they could reasonably implement in particular circumstances. In this case, the undertaking concerned shall take account of the time required to implement such decisions;
8° Insurance and reinsurance undertakings shall take account, in their internal model, of all payments to policyholders, underwriters and beneficiaries of contracts which they expect to have to make, whether or not such payments are contractually guaranteed.
II.-The statistical quality standards are specified in Articles 228 to 237 of Commission Delegated Regulation (EU) No 2015/35 of 10 October 2014.
