Use of internal models

(1) Insurance undertakings may use an internal model, in the form of a full or partial internal model, to calculate the Solvency Capital Requirement.
(2) Written internal policies must be established for the model, specifying which changes the insurance undertaking may make to the internal model. The internal policies must specify when a change qualifies as minor or major.
(3) The use of a model, the internal policies and any amendments to them, amendments to the model, and the discontinuation of use of the model and full or partial reversion to the standard formula, must be approved by the supervisory authority. The first sentence does not apply to minor changes to the model. The supervisory authority approves the application where the systems for risk identification, risk measurement, risk monitoring, risk management, and risk reporting are appropriate and, in particular, the requirements named in subsection (4) are met. Full or partial reversion to the standard formula may be approved only where there is sufficient justification for it.
(4) The internal policies under subsection (2), together with documents demonstrating that the internal model satisfies the requirements of section 112(2) and sections 115 to 121, must be submitted with the application for approval.
(5) The supervisory authority decides on the application for approval within six months of receipt of the complete application.
(5a) The supervisory authority informs the European Insurance and Occupational Pensions Authority, in accordance with Article 35(1) of Regulation (EU) No 1094/2010, of all applications for the use or amendment of an internal model. The supervisory authority may request the European Insurance and Occupational Pensions Authority, under Article 8(1), letter b, of Regulation (EU) No 1094/2010, to provide technical assistance in deciding on applications.
(6) The supervisory authority may require insurance undertakings to whom it has approved the use of an internal model to provide an estimate of the Solvency Capital Requirement calculated using the standard formula under sections 96 to 110.