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📐 '''Model change policy''' is a governance document required of insurers that use [[Definition:Internal model | internal models]] for calculating their [[Definition:Solvency capital requirement (SCR) | solvency capital requirements]], setting out the criteria, processes, and approval thresholds for modifying those models after they have received [[Definition:Supervisory authority | supervisory]] approval. Under [[Definition:Solvency II | Solvency II]], any insurer operating a full or [[Definition:Partial internal model | partial internal model]] must maintain a written policy that classifies potential changes — distinguishing between minor adjustments (such as routine data updates or parameter recalibrations) and major changes that could materially alter the model's risk profile or capital output. Comparable expectations exist in other risk-based [[Definition:Insurance regulation | regulatory]] regimes, including the [[Definition:Swiss Solvency Test (SST) | Swiss Solvency Test]] and elements of the [[Definition:Own Risk and Solvency Assessment (ORSA) | ORSA]] framework globally, though the specificity of the policy requirement is most codified in the Solvency II delegated regulations.

⚙️ A well-constructed policy defines a taxonomy of changes — often categorized as major, minor, or administrative — with explicit quantitative and qualitative thresholds for each tier. Major changes typically require prior approval from the [[Definition:Supervisory authority | supervisory authority]] before implementation, while minor changes may proceed with notification and subsequent review. The policy assigns clear ownership: [[Definition:Risk management function | risk management]], [[Definition:Actuarial function | actuarial]], and [[Definition:Model validation | model validation]] teams each play defined roles in proposing, assessing, and signing off on changes. An internal change log records every modification, supporting [[Definition:Audit trail | audit trail]] requirements and enabling regulators to trace the evolution of the model over time. Robust [[Definition:Model validation | validation]] procedures — including back-testing, sensitivity analysis, and independent review — are triggered according to the severity classification, ensuring that the model's outputs remain reliable and that the insurer's [[Definition:Solvency ratio | solvency ratio]] accurately reflects its risk exposure.

💡 Without a disciplined approach to model changes, an insurer risks either operating with an outdated model that fails to capture emerging risks or introducing modifications that inadvertently compromise the model's integrity and regulatory standing. Supervisors scrutinize model change policies closely during [[Definition:Supervisory review process (SRP) | supervisory review processes]] and on-site inspections, and weaknesses in this area have led to remediation requirements and, in some cases, restrictions on internal model use. For insurers, maintaining a clear, well-documented policy also has practical benefits: it streamlines the approval process with regulators, reduces the burden of ad hoc negotiations over individual changes, and provides the [[Definition:Board of directors | board]] with confidence that changes to a complex quantitative engine follow a controlled, transparent pathway. In an industry increasingly reliant on sophisticated [[Definition:Catastrophe model | catastrophe models]], [[Definition:Machine learning | machine learning]] techniques, and [[Definition:Stochastic model | stochastic]] simulations, the governance infrastructure around model evolution is as important as the models themselves.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Internal model]]
* [[Definition:Solvency capital requirement (SCR)]]
* [[Definition:Model validation]]
* [[Definition:Own Risk and Solvency Assessment (ORSA)]]
* [[Definition:Actuarial function]]
* [[Definition:Solvency II]]
{{Div col end}}

Definition:Model change policy - Revision history

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