^aSwiss Re Germany AG, Dieselstrae 11, Unterföhring bei München, München 85774, Germany. E-mail: Peter_Liebwein@swissre.com

¹The author thanks Dipl.-Math. Rita Niering, Actuary (head of Ricasso^® Centre of Competence) and Dipl.-Nat.wiss. Sandro Kriesch (head of "Risk and Capital" of Swiss Re in Zurich) for their feedback.

²The paper presented is an extended and updated version of the workshop on this topic at Swiss Re's Nordic Risk and Insurance Summit (NORIS), Copenhagen 31st August 2005.

Abstract

In the context of the quantitative requirements under pillar 1 of Solvency II, internal risk models quantify a specific company's risk position, that is, measure the risk capital it requires. Because the individual insurance company's situation is modelled, its risk landscape is reflected more accurately than if a standard model approach were used. A brief case study indicates that internal risk models should be used not only to fulfill regulatory requirements, they have to and they do feature more benefits: risk models foster risk management processes; therefore, they are capable of supporting risk-based business decisions. Finally, they constitute a kernel for any risk-based performance measurement framework.