More than half of insurers are preparing to change the way they calculate regulatory capital as Solvency II approaches, Deloitte has said.
The business advisory firm said that of those making preparations, 60% have increased the sophistication of their approach to calculating the capital they must hold, and 40% have simplified their approach.
Among those making changes, 37% are switching from a partial internal model to a full internal model, and 23% have moved away from
The Solvency II rules will be implemented in January 2014.
Deloitte lead Solvency II partner Rick Lester said: "Solvency II forces insurers to analyse the risks they run across their business and determine the level of capital they need to hold.
"Risk models lie at the heart of the rules and enable insurers to calculate capital requirements in line with the level of risk they are taking."
Almost four in ten insurers which are changing their approach will switch from a partial internal model to a full internal model.
A further 10% will do the opposite, moving from a full internal model to a partial one, and 30% are moving from their current models to the standard formula for calculating their capital requirements.
"Insurers use internal models if they believe they are a better reflection of their risk profile than standard models," said Lester.
"There is a cost to adopting them, but there are also potential benefits because they can give a better understanding of risk, which should enable better business decisions and may ultimately lead to lower capital requirements."
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