Leading up to the 'go-live' date for Solvency II, insurers in Europe are in search of practical solutions for calculating their solvency capital requirement (SCR) under Solvency II.
There are a range of options available to insurers to calculate SCR from Standard Formula to partial internal models to full internal models. It is generally accepted that full internal models promise a greater range of advantages to insurers compared to the other alternatives. One barrier for firms considering a full internal model approach may be the perceived technological requirements. An internal model is essentially a huge Monte Carlo simulation that requires precise data management and the processing of tens of thousands of scenarios. This approach has historically been time-consuming, expensive and computationally demanding, but new options such as curve fitting offer dramatic performance improvements at a more acceptable cost.