Model Requirements

Question 1

Timescale/budget

Answer 1

Should not be overly complex, otherwise will take up too much time to build and run or be unnecessarily expensive

Question 2

Realism

Answer 2

• Valid
• Rigorous enough for purpose
• Reflect risk profile of business, with approp inputs
o Eg discount rate should reflect level of risk associated with the business
• Parameters reflect features of business (eg term)
• Allow for all cashflows to/ from business (incl bonuses) including interactions between assets and liabilities
• May need to be stochastic
• Should allow for effect of reserving requirements
stochastic

Question 3

Checking and documentation

Answer 3

• Outputs should be verifiable
• Model should be adequately documented (incl limitations and key assumptions)
• Parameters should show sensitivity of results to key factors of business
o Eg renewal rates and new business volumes

Question 4

Communication

Answer 4

Model should produce results that can be communicated to the management/ shareholders/ regulator

Question 5

Future use

Answer 5

• Should be possible to reuse the model for similar purposes
• The model should be capable of development and refinement – nothing complex can be successfully designed and built in a single attempt. Also regulatory reqs may change in the future