PRA on "good" and "bad" documentation for IMAP - restart or refresh?

As an welcome aside from the PRA's activity day on the 12th, they also delivered on a promise to provide examples of what constitutes "good" and "bad" documentation in the context of the internal model approval process (IMAP). Bearing in mind it has been quite some time since the PRA publicly pronounced on the matter - indeed, they were called something else the last time they did - the industry welcomed this in like a lottery-winning prodigal son.

Bad documentation
- reform or execute?

There have certainly been enough apocryphal tales spewed out by the industry over the last couple of years to suggest that the production of documentation to support participation in IMAP had transformed from a small cottage industry into something of a palatial Georgian Mansion house with a granny annex.

Whether or not this kind of advice is therefore timely enough to save the Solvency II Programmes of the UK from using documentation in their revitalised IMAP preparations that is neither good for man nor beast is another thing, bearing in mind there is three years worth of accumulated flotsam currently kicking around the servers of UK insurers which, given this message, will need to be revisited as a matter of urgency.

Regardless, as the UK still appear to hold the whip hand in EIOPA's model sub-committee, the PRA's views on model documentation are relevant to readers across the continent, so the document is well worth a read for anyone in pre-application.

I took the following from it;

• They have 3 principles of "good documentation" - accessibility, evidence and quality control
• "It is helpful to have a clear separation of policy, methodology and results"
• The document refers throughout to giving consideration to "the reader". Feels a little disingenuous if they mean "the PRA", and after reading their document a couple of times, I can't imagine who else they have in mind.
• Following on from that point, a reference to a bad example suggests that "...the author is not thinking carefully about the audience" - it is equally fair to suggest that the author may be assuming a level of technical/commercial knowledge at the PRA end which is lacking?
• The PRA are evidently not happy to have to "seek clarification" on matters, which suggests the time allocated to assessments is tightly planned, or indeed the level of technical knowledge held by the assessors is limited.
• Interested to know if these principles hold firm for Standard Formula firms if viewed conversely e.g. does paperwork for the justification to not use an internal model need to be of a similar standard?
• The reiteration that the PRA "...will rely, in large part, on the submitted documents" when assessing the model - just in case your friendly executive committee reckon they can talk their way in!
• A lofty aim to improve "accessibility" of documentation, by having levels covering; executive summaries; model reviewer/validator level info; and model user/operator level technical documentation. The PRA only want the first two levels as a matter of course, which would suggest that procedures and technical documentation should be used as supporting evidence only.
• Tabling up references to the Directive and Implementing Measures within documents is viewed favourably.
• Their "useful rule of thumb" feels instinctively unwieldy - they suggest better documents contain one-third 'what has been done' with the rest covering 'why and how'. That said, expert judgements are clearly not being evidenced anywhere near the level desired.
• A convoluted and potentially frightening reference to "self-validation" testing, which the PRA view favourably, but which seems to point towards a preference to see suites of documentary evidence for each assumption applied in the modelling process. 
• To conclude, readers are redirected to Julian Adams's letters from  mid- 2012 (here and here) - important to note that this guidance remains relevant, regardless of the passing of time.

I suspect that most model applicants will find they have re-work to do off the back of this, both with the pen and with the sickle. Expert judgement and assumptions documentation remain the unquenchable thirst though, so one's best endeavours would be well spent in that field in early 2014.

Pre-application for Internal Models - EIOPA's FINAL preparatory guidance for national supervisors

So the March consultation document for internal model pre-application brought a few eye-openers for those countries partaking in a less onerous application process than that favoured by the UK, with the detail in it suggesting that the UK very much had the whip hand in its drafting.

On the basis that there were still areas which even the most hardened IMAP-veteran may have winced at, it was interesting to see if anything got dropped in the lobbying stampede. On that basis, the final guidance for internal model pre-application covers the following in the preamble;

• 3.10 - That it is not in the NCAs gift to conduct pre-application preparation along the lines of provisional approval or to provide "roadmaps" to compliance (which may explain the PRA's caginess with the industry). It is purely about a firm's preparedness and suitability to submit an application
• 3.33 - On request, EIOPA have introduced a compulsion for NCAs to provide "regular feedback" to firms
• 3.35 - Confirms that not all model changes need to be reported to NCAs during pre-application, just those considered "relevant" by firms themselves

It is fair to say that the lobbying in this space has been noticeably more successful than for ORSA or System of Governance, no doubt due to the smaller sub-set of affected stakeholders having a more concentrated relevance. That said, there were still a number of rebuffs from EIOPA, particularly where the lobbying looked more like whinging about paperwork volumes! Highlights below;

Model Change Policy

3.38 - No danger of EIOPA supporting the recommendation to "fast track" model change approvals if a "major change" is required at short notice. They instead recommend "proactivity" with NCAs. Not sure what this does for the world of opportunistic acquisitions though

3.40 - Fudged the question as to whether parameter changes are considered "major", offering an answer of 'it depends' which, for me at least, leans more towards 'yes they are'.

Use Test

3.42 - Confirms that evidencing "use" is not compelling use of model outputs over and above other techniques

Assumptions and Expert Judgement

3.46 - Documentation and validation of assumption setting and expert judgements considered "crucial" in order for undertakings to counter the lack of data and subjectivity in those processes

3.47 - A guideline has also been amended to confirm that the materiality principle applies for this topic

3.48 - Only the most material assumptions will need AMSB sign-off

Methodological Consistency/PDF/Calibration

A number of changes made to clarify guidance in these areas

Profit and Loss Attribution

3.64 - No escaping the requirements to produce P&L attribution granularity at Legal Entity level, as well as by risk driver

Validation

3.68 - EIOPA do not accept that those who build models may also validate them

Documentation

3.70 - That the guidance around the documentation of the internal model should provide "...[protection] from key-person risk", which I have never seen offered as justification from the supervisory end before

Ultimately, there have been no huge concessions from the position in March, which one would think will cause a number of the more liberal EU regulators to give serious consideration to "explaining" rather than "complying" - that said, with this having been written in Union Jack ink, my British cousins should simply get their transition planning updated accordingly.

ORSA/Forward Looking Assessment of Risk - EIOPA's FINAL preparatory guidance for national supervisors

EIOPA reuse the preamble from the System of Governance guidance in their ORSA/FLAOR guidance, save for confirming that an assessment of overall solvency needs will be expected in 2014 and 2015 (more on that later). I will use ORSA rather than EIOPA's shiny new acronym for my own convenience throughout this post!

It ultimately reads in parts as a circuitous and convoluted piece due to the way that EIOPA have had to splice the ORSA requirements into three component parts, as per Article 45.1 of the Directive, to accommodate the postponement of some elements until 2015. An horrific example of this is point 3.112, which to paraphrase Chris Morris, reads like the ramblings of a drugged horse.

That said, they have clearly had to contend with a mountain of feedback since the initial consultation paper was released, and have done a better job of explaining why most comments were, in EIOPA's view at least, misguided.

Again from the practitioner's perspective I would highlight in general that;

1. There is almost no discernible movement in EIOPA's position, even after lobbying;
2. That explanations for the inclusion of contentious content are generally forthcoming, though for this subject are more forthright and pragmatic (perhaps naturally due to the lack of L1 and L2 substance);
3. That 2014 ORSA is a genuine piece of work which will require the attention of the most senior staff in insurance firms - it would be a brave company that play-acts at any elements of the documentation, processes and outputs of the assessment.

Supporting arguments for EIOPA's final views are listed below, along with any relevant commentary from my practitioner's angle; 

Clarification re Omnibus II
3.49 - If go-live in 2016 does not happen due to further Omnibus II delays, "...undertakings will still be expected to perform the [overall solvency needs] assessment from 2014 onwards"

Clarification re continuous compliance with SCR and Technical Provisions calculations requirements, and the deviation from SF SCR assumptions assessment
3.50 - Confirm that these elements are postponed until 2015, and that technical specifications will be forthcoming from EIOPA by year-end to aid in the conduct of some of this activity.

Parallel running Sol I/Sol II concerns
3.53 - basically, not EIOPA's problem!

Compulsion for model applicants to also use SF in the assessment
3.54 - clarify that this in NOT about benchmarking models, rather "taking into account contingencies" should a firm's model not get through IMAP. A thoroughly negative and unsympathetic approach from EIOPA on this one I'm afraid

Timing
3.58 - "EIOPA considers it necessary that all undertakings perform the assessment of overall solvency needs at least two times during the preparatory phase, once in 2014 and once in 2015...[and] at any time during 2014"
3.60 - Stress that "...it is for the undertaking to decide on the appropriate reference date for its FLAOR", though couched in an expectation that financial year-end is most likely.

Guideline 5 - Delegation of activity by the AMSB
3.73 - "not acceptable" to delegate full responsibility for ORSA to sub-committees of the AMSB

Guideline 7 - ORSA Policy
3.62 - "...it is necessary to develop a full policy during the preparatory phase"
3.63 - "...[The ORSA Policy] may be part of the policy on Risk Management", though must be clearly identifiable

Guideline 8 - Record of the ORSA
3.64 - Rather bizarrely suggest that the ORSA Record is "...no less, but maybe even more important during preparation that after the start of Solvency II", but either way the message is clear - maintain the records carefully

Guideline 9 - Sharing information internally
3.77 - "It is for the AMSB to decide which parts of the information will be distributed to whom" - clearly some panic amongst respondents that they may have to start telling the 'proles' about their future employemnt prospects!

Guideline 10 - Supervisory Report
3.66 - EIOPA "...does however not expect that the first report will necessarily already be perfect"
3.69 - AMSB sign-off, accepting the results of the ORSA is the trigger for the 2 week window in which to submit the Supervisory Report
3.70 and 3.71 - Some rather confused paragraphs which seem to indicate that, if there is enough resistance to the results internally, that extra time may be afforded to the firm

Guideline 11 - Valuation bases
3.79 - EIOPA scrutiny postponed until 2015, but justifications on bases used expected

Guideline 12 - Overall Solvency Needs assessment
3.83 - EIOPA expect "...it will take several years" before this assessment is good enough, hence they expect the preparatory phase to include practice!

Guideline 14/15 - Continuous compliance with SCR requirements and Technical Provisions calculation rules
3.85 - Postponed until 2015, and again justify activity prior to Solvency II going live by using a practice makes perfect mantra, noting that attempting to do this will "...intensify the learning experience"! I wonder if anyone ever used that phrase in their budgeting requests...

Guideline 16 - Deviation of one's Risk Profile from SF SCR assumptions 
3.89 - Postponed until 2015, and also note that quantifying one's deviation from the SF assumptions will not be necessary "...if there is no indication that the deviation is significant". I guess modellers will have to wind their necks in around Credit Risk assumptions in particular on this matter, bearing in mind the diversity of methods currently on display.

Ultimately, little opportunity for shortcuts then, but perhaps enough time to review what's already in place before resource planning your 2014 activities.

PwC and CSFI's 2013 Insurance Banana Skins survey - "Conduct Risk" firmly a la mode

Following on from the 2011 version, PwC and the Centre for the Study of Financial Innovation have pumped out another version of their Insurance Banana Skins survey, identifying how well the insurance industry feels it is prepared to handle a list of pre-identified risks. The average response on a scale of 1 to 5 was 2.97, which rather unrevealingly suggests the industry is averagely prepared to manage its collective risk profile.

EU Legislative process - not for vegans

This survey was conducted during March/April 2013, and elicited 662 responses from 54 countries, with two-thirds of respondents coming the insurance industry (the rest consultants/brokers etc). Almost half were European, so no surprises that the risks emerging from the regulatory environment were top of the pops for the second survey in a row. Solvency II gets a particularly flavoursome mention, with reference to its struggles to get through the "Brussels Sausage Machine"...

Bearing in mind the exquisite pressures being applied by the EU machinery to quantify risk, this publication is a welcome return to horizon scanning, qualitative assessment and emerging risk, all of which is handy for the ORSA posse, who according to recent surveys, should be all over this during 2013.

Some very interesting snippets emerge from the report, in particular;

• "Conduct Risk" - if ORSA was the new boy in 2012, then its 2013 counterpart is surely Conduct Risk, which I suspect didn't warrant a category of its own in many risk managers thinking until the return of twin peaks regulation in the UK. Conduct Risk has shot up the charts in its significance for insurers, now sitting 4th (from 18th last year)! Specifically, the suggestion that insurers are now "...looking beyond conduct risk as simply a compliance exercise" makes you wonder what some firms through were acceptable products in the last 10 years!
• "Guaranteed Products" - was not listed last time around, now jumps to number 6
• Actuarial Assumptions (which can easily mask the emergence of a number of the risks listed) unchanged at 12th
• Capital availability down from 2nd last time to 16th this year - interim period been spent squirrelling capital away, or happy that the onerous elements of Solvency II are (thanks to Germany) in the distant future?
• Reputational risk still in mid-table, at 14th

And sectoral/country specific;

• Surprisingly, the Life sector doesn't have actuarial assumptions in its top ten concerns
• Equally surprisingly, the non-life sector doesn't have regulation in its top ten concerns - clearly happy with their proposed Solvency II lot!
• That reputation doesn't feature in reinsurer's top ten - with customers likely to be eager yet more discerning  under Solvency II, one would think this is an area for enhancement in order to stand out from the similarly-rated crowd
• The quality of risk management appears to have spiked as a concern largely due to the emergence of emerging market firms into the space playing catch-up (on paper at least), as well as concerns that some firms are playing at risk management without making necessary adaptations to the prevailing risk culture.

Internal Model Validation - the "desire for certainty"

Some useful snippets on the links here for anyone in the model validation space, whether if be the practical applications of Monte-Carlo simulation outside of the insurance industry, actuarial perspectives on model risks themselves such as parameter uncertainty and goodness of fit testing where "the problem is more often too many candidate distributions" as opposed to restrictions in choice.

This fantastic blog post from one of Willis's finest is about as blunt a critique of actuarial modelling activity and its potential for subsequent misuse as I have read, and I would strongly recommend it on to non-expert risk practitioners who may one day find themselves in the model validation/use test firing line. A few of the pearls of wisdom offered (focused on reinsurance industry, but relevant to all) include;

• How the human "want to believe" and "desire for certainty" can lead to models making rather than guiding decisions
• Reliance of models on "large numbers of heroic assumptions"
• "Data is always limited and flawed"
• That "models take combinations of assumptions and torture them to come to conclusions"
• The revisiting of assumptions only when the answers don't fit expectations ("euphemistically called 'calibration'", hilarious!)
• That using models for setting regulatory capital, rather than just informing decision making, has led to "extremely onerous" IMAP activity i.e. the limitations noted above are so well established that the regulators cannot ignore them at a granular level.

Then there this piece from Deloitte US on model validation, or more specifically, research into the quality of existing actuarial modelling controls, is an eye-opener for anyone working in the validation space. With RMORSA and associated capital modelling firmly on the agenda Stateside, it is interesting to watch how aggressively they approach validation, bearing in mind this work was commissioned by the Society of Actuaries, whose members may ultimately be charged with applying some of these recommendations!

This research in particular assesses current state versus best practice controls over the assumptions, inputs and outputs of actuarial models, and though the sample of respondents to the survey is relatively small (representing "30 unique companies"), the absence of suitable supporting documentation around model governance so evident in the UK's IMAP process appears to be a depressingly constant theme. This report at least includes recommendations as to how the US actuarial profession may bridge some of the gaps Deloitte identify.

In the NAIC's ORSA Manual, they ask that "ORSA Summary Report should provide a general description of the insurer’s process for model validation, including factors considered and model calibration" (p7), which I guess is what one expects to see in the EU (i.e. validation being a sub-process of the ORSA, which can be summarised in the ORSA reports). That said, the breadth of validation work performed over there will surely be driven by S&P expectations communicated in ERM Level III reviews, rather than profession-sponsored consultancy recommendations!


Finally (and slightly off track), an odd piece from Towers Watson on validating ORSAs, pitched to a room full of Internal Auditors. Would be unfair to say there aren't some salient points throughout, but given that there is "no clear requirement" to validate ORSAs (there was something on the matter in the original CEIOPS ORSA pre-consultation, but it was dropped in the public consultation and the final advice), then you would think it could be covered in less than 30+ slides!

As it happens, the TW slide pack for internal model validation appears to have been raided and had the acronym 'ORSA' jemmied into the text for much of the second half of it.

EIOPA preparatory guidelines - pre-application for Internal Models

Consultation on Pre-application for internal models guidance  (plus explanatory text)

As staggering as it is frightening, and perhaps indicative of the diversity of approaches currently on parade across the Union, the pre-application for IMs preparatory guidance is 60 pages, comprising of 72 guidelines, accompanied by a whopping 144 pages of explanatory text. This accompanies the existing 82 pages of L3 guidance on the matter released by then-CEIOPS in 2010! A sub-group of EIOPA's IRSG has been assigned to deal with the nitty gritty of this element of the preparatory guidelines.

On first read, this feels massively influenced by the UK's activities to date, and indeed anyone working in that space will recognise FSA pawprints all over the granular details contained within. This is fair I suppose - the InsuranceERM models map has the UK down for around 1/3rd of models currently in 'pre-application' across the continent.

Therefore bearing in mind the UK approach is already pretty well established, I have highlighted below areas which either diverge from what is currently being exercised on the ground, or which clarify (at least for me!) areas which were previously ripe for controversy or disproportionate/inconsistent application. Where it is common sense or continuez tout doit, I have ignored it.

Most importantly, I am reading it as a fait accompli - bearing in mind the short window of time between consultation end and period commencement, EIOPA's recent past on consultation responses (i.e. 'thanks but no thanks') and the UK's evident participation in the bulking of these guidelines, I don't see much room for lobbying swathes of this away, nor for the PRA to "explain" rather than "comply"!

GENERAL GUIDELINES

Guideline 3

• As well as nature, scale and complexity, "design, scope and qualitative aspects" of the IM should be considered when allowing for proportionality 

Guideline 4

• Any model changes pre-application look like they will be pored over by NCAs, including the associated change approval process 

MODEL CHANGES

Guideline 5 - Model Change Policy

• Policy should, as well as SCR-related changes, include changes to: system of governance (around model change); compliance with Use Test requirements; appropriateness of technical specifications and changes in Risk Profile

Guideline 6

• Approach to classifying "major" changes is expected to be objective
• Must also take into account specificities of the company (so benchmarking percentage changes against your neighbours may not be that useful) 

Guideline 7

• Aggregated change triggers must be considered, not just isolated changes
• Offsetting positives and negatives won't be acceptable to avoid a "major change" trigger!

Guideline 8

• Major/minor changes must be determined at Group and entity level

USE TEST

Guideline 9

• "No complete and detailed list of specific [model] uses" will be supplied by NCAs.

Guideline 11

• Granularity of the Risk Management System will need to match the IM in terms of categorisation
• The "structure of decision making fora" will be assessed in ensuring the IM fits to the business - extraordinary!
• Records expected to be available to show how IM outputs are designed

Guideline 12

• Assessment of training, seminars, workshops, meetings and direct interviews "should be considered" in pre-application

Guideline 13

• Will need to "ensure [IM] will be used" during pre-application, as opposed to "use it"
• Expectation that, if other tools are used in decision making, IM is improved having assessed inconsistencies against said tools

Guideline 14

• Evidence of prospective support and retrospective verification of decision making would be advisable for candidates

Guideline 15

• Must document where model is not aligned to the decision ultimately made

ASSUMPTION SETTING/EXPERT JUDGEMENT

Guideline 19

• "Materiality" in the context of assumptions will need to be both qualitatively and quantitatively assessed - should generate some healthy Risk/Actuarial function debate!

Guideline 20

• A validated and documented process for assumption setting and expert judgement will be required
• Sign-off on assumptions will need "sufficient seniority", up to and including AMSB

Guideline 21

• A formal and documented feedback should be maintained between assumption setters and users

Guideline 22

• On the transparency of assumption setting, point 1.64 here effectively asks for an Assumptions Register, as well as dictating what it expects to see in it.

Guideline 23

• Process mapping of some kind expected for the validation of assumption setting
• Independent assumption review is also expected - doesn't dictate whether this should be internal/external, but it will keep someone in clover no doubt.

METHODOLOGICAL CONSISTENCY

Guideline 26

• Methodological consistency to be validated

P&L ATTRIBUTION

Guideline 37

• Point 1.105 seems to confirm P&L attribution by risk driver is required

Guideline 39

• P&L attribution must be used at least annually in the decision making process

Guideline 40

• P&L attribution to be used in the validation process (specifically, old ones to be compared against  experience

VALIDATION

Guideline 41 - Validation Policy to contain at least

• Process, methods and tools, and their purposes
• Frequency of validation for each part of the IM, and triggers for ad-hoc validation
• Persons (not roles) responsible for each task
• Procedure to be followed where reliability of IM is questioned, and ensuing decision making process

Guideline 42

• Shies away from touching Internal Model scope when talking of validation scope - great move!

Guideline 43

• Evidence of sensitivity testing expected when determining materiality

Guideline 44

• Must document known limitations of validation process, as well as circumstances where the process falls over
• May even be asked to quantify the degree of uncertainty!

Guideline 45

• A documented escalation path would be advised

Guideline 46

• Risk Management function will be pressured, as the function with overall responsibility, to ensure all tasks are completed (if not directly performing them) - new skill set?

Guideline 47

• Evidence of how the RM function ensures that the validation process remains independent of IM design and ops should be collected/enhanced

Guideline 49

• A process will be expected to ensure the choice of validation tools used considers; complexity, nature, independence and knowledge of participants - feel this could be tricky for the smaller IMAP guys without leading to additional spend on consultants

Guideline 50

• Must be able to document the appropriateness of the validation tools used accounting for; materiality of IM part, granularity of the data being tested, purpose of the task and the expected outcome

DOCUMENTATION

Guideline 53

• Expectation of a "...clear referencing system [for IM documentation] which should be used in a documentation inventory"

Guideline 55

• An overall summary of IM shortcomings, "consolidated into a single document" will be expected
• This needs to cover at least; Risks not modelled, limitations in modelling, sources of uncertainty in results, data deficiencies, external models/data, IT limitations and governance limitations.

Guideline 56

• Potential suggestion that there should be more than one level of IM documentation to suit other audiences/uses - IM for Dummies anyone?

Guideline 57

• End-to-end User Manual expected which an Independent Knowledgeable Third Party could operate

Guideline 58

• Stress that a single document containing all model outputs (as Use Test evidence) is not required - acceptable as single docs

EXTERNAL MODELS AND DATA

Guideline 60

• Expectation that external data sets will be sense-checked against "other relevant sources"

Guideline 61

• Understanding of external models must extend to technical and operational aspects, as well as assumptions

Guideline 64

• "Material" assumptions of external models must be validated
• In point 1.163, any potential for cherry-picking features/options of external models is constrained

Adams speech to the Economist Insurance Summit - lessons from financial crisis

Some particularly useful context setting from Julian Adams last week for anyone in the Internal Model game, with this speech to the Economist Insurance Summit around what lessons could be learned by insurance supervisors from the financial crisis.

While he amusingly interchanges between "financial crisis" and "banking crisis" to emphasise that it wasn't our fault, and drops in the now obligatory reference to the importance of insurers as long-term investors, echoing the Commission's pleas from late last year, the majority of the speech focuses on why models go wrong (not the name of a ropey catwalk reality tv show...)

Insight on where the FSA thought firms were going awry in the Solvency II modelling preparations was delivered to the industry in the middle of last year, but I found this speech helpful in the context of proportionality i.e. what elements of economic capital modelling are worth spending extra time on theorising, documenting, debating and minuting for IMAP candidates. I saw the following comments as highlights;

Reasons for internal models in the banking industry being exposed;

• "...rested on assumptions which turned out not to hold when bad times came"
• "...review period" selected when parameterising
• "...insufficient rigour and independence from the front end of the business" when parameterising
• "...management attention too often focused on those parameters considered too conservative at the expense of those that were insufficiently prudent"
• "...destabilising feedback loops" where underestimation of risk (due to data selection) plus use of the model leads to a vicious cycle of unacknowledged over-accumulation of risk
• "...flawed technical assumptions" in tail-end probability estimation where data is drawn from "normal" times

Lessons for Solvency II

• "Data [should be] sufficiently robust"
• Assumptions should be "appropriately conservative"
• "[Supervisors] can be helped...by the much greater use of imaginative tests of resilience to deeply stressed scenarios"
• "...paucity of relevant historical data for the calibration of tail dependencies between risks"
• That "...the limitations [of capturing tail dependencies] are recognised, and conservatism built in to the calibrations"
• That "...correlations in the tail are likely to be assymetric in nature" for insurers
• That "...the adoption of quantitative techniques...will not change the nature of the risk itself"
• That supervisors "...must not blindly accept the outputs of these models"

Appreciating some of this is hardly new news, any increased documentation and rigour in the areas highlighted will no doubt be well received down at the Wharf.

FSA Speech - Adams at Insurance Day Summit on Internal Model Progress (or lack of...)

Another day, another bum-kicking for the IMAP candidate firms, who have been the recipients of some public words of 'encouragement' from the FSA's Julian Adams in a speech to the Insurance Day Summit yesterday, coupled with a "Dear Firm" letter which went to all internal model applicants this week.

The same themes which have pitched up in recent presentations (here and here for example) are still for all to see - model change, model scope, validation and expert judgement/rationale all feature heavily in the speech - but perhaps the elaboration on both assumption/dependency setting and documenting and Use Test embedding are breakout features from those already tabled as being insufficient.

Useful for those outside of the UK to see exactly what is twisting the FSA's tail at the moment, while for all you UK readers, the letter is clearly a laundry list which will require immediate attention and prioritisation in your work plans. Good luck...