The CRO Forum welcomes the opportunity to contribute to the calibration of the standard formula through this paper on correlations. This document is a follow-up to our position paper published last May: ‘Calibration Principles for the Solvency II Standard Formula”. The paper provides our recommendation on the methodology to calibrate market risk correlation factors as well as a counterproposal for the correlation matrix as suggested by CEIOPS in its Consultation Paper n°74. The final chapter of this document also briefly addresses the correlations for non-market risk. The calibration of dependencies of risk factors is among the most difficult tasks when setting up a capital model. The recent financial crisis has highlighted that the dependence structure of market risk can change in stressed situations.
