LONDON—”An insurance company will never look the same again after Solvency II,” Marc Beckers, head of analytics for Aon Benfield in the Europe, Middle East and Africa, said during a recent Aon Benfield-sponsored Solvency II conference.

At the London conference, industry practitioners shared their experiences about implementing capital models within the Solvency II framework.

Gary McInally, who is responsible for capital modeling at Guernsey-based Canopius Group Ltd., said there are several areas of concern for insurers that are implementing models under Solvency II.

For example under Solvency II, he said, insurers will be required to factor in “binary events,” such as mega-tsunamis, meteor strikes and nanotechnology, into their reserves in addition to their “best-estimate” needs.

If regulators are going to require insurers to hold amounts greater than their best-estimate reserves, he said he would prefer that regulators make clear what that sum should be.

Another area of uncertainty for insurers is insurance risk, said Mr. McInally—specifically whether management's responses to the insurance cycle and reinsurance purchasing decisions should be included in models.

While it appears likely that management decisions will not have to be included in the models, Mr. Mcinally said, many insurers have spent a considerable amount of time discussing and working on this difficult-to-quantify issue.

James Toller, who is responsible for capital modeling at Dublin-based Beazley P.L.C., said his company uses capital models to help its management team view the risks the company faces.

Beazley explicitly includes the market cycle in its internal model because this, he said, is a big risk for the company. “If there was a systematic mispricing, it would affect our reserves,” he said, “and so we model it.”

Models need to be transparent so managers can use them to challenge their teams, he said.

For example, Beazley has put in place risk-scoring mechanisms to allow managers to adjust for changes such as an underwriter leaving or the limits being offered for a certain line of business being changed, he said.

Solvency II will include a “use test,” which forced Beazley to ask who would use its model. As a result, said Mr. Toller, senior management and underwriting management team members receive training on the use of the model to demonstrate to regulators that the model is being used within the business.