How we helped our client take a different perspective to clear the way for internal model approval.

The background

Our client, a large insurance group, asked for our help to identify any material obstacles to a successful IMAP submission and help them demonstrate that the internal model had been subject to appropriate validation challenge. The regulator was happy with the firm’s detailed (“bottom up”) validation but required more evidence of the effectiveness of the board’s “top-down” challenge of the model.

Our solution

• Our review involved posing a number of questions about the model from a board member’s perspective. The key “top-down” test was whether a director could easily find sufficient evidence to answer the question without enlisting the help of an expert.
• We found that most questions could be satisfactorily answered from an “expert” perspective, but not always from a company director’s perspective.
• We helped our client develop appropriate board-level evidence in the areas where this was lacking. We also helped develop action plans for areas requiring longer-term development.

The results

Board members have a clearer understanding of the model, including its limitations and how these are being addressed. They are now able to provide evidence of robust top down validation challenge, a key component in being able to pursue internal model approval with confidence.