Hi In chapter 28 where we talk about developing an appropriate investment strategy the notes talk about a full office model being used. My question is could the full model office used for dynamic solvency projection be used for the investment strategy projections IF the basis of assumptions for the economic basis for solvency and the investment strategy were the same. I think the answer is yes. However, in developing the strategy the basis will be changed, but the model could still be used, and parameters could just be changed to allow these alternative projections. I am trying to get clarity on all the unique 'models' that might need to be maintained, but I think this is just one model that can be used for different purposes. Thank you
Hi Rachael Yes, a model office can be used for a range of purposes, eg projecting solvency, investment strategy, reinsurance strategy. A model office is just a name for an internal model of what the business is really like (as opposed to a model for regulatory purposes). In all these cases the insurer needs a model that can project assets and liabilities, allowing for management actions and new business. Best wishes Mark
Hi Mark, thank you. Would the model used for supervisory solvency calculations just be the full model office/internal model, but with different assumptions in? I would expect the cashflows projected and outputs to be similar just the assumptions to be different. For 'realistic basis' the company would still want to know its minimum capital requirements as defined by the regulator so would want to project these. Or would the model for the supervisory solvency be fundamentally different? Thank you, Rachael
Hi Rachael In theory we could use the same model for all purposes and just change the various parameters. But in reality the model would be far too big and unwieldy to work. So I would expect the supervisory solvency model to be different. For example, it wouldn't need to include new business. But on the other hand the supervisory solvency model may have to look at individual policies, whereas the model office may be simpler and use model points. Best wishes Mark
