The traffic-light model is a part of Finansinspektionen's methodology for supervision of Swedish insurance companies. The model measures the companies’ exposure to various risks.
The traffic-light first calculates a capital buffer based on the fair value of both assets and liabilities. The company is then subjected to a number of fictional stress scenarios, which are determined by FI. The scenarios imply a combined capital requirement.
If the company's buffer is not sufficient, the traffic-light model shows a red light. FI then conducts more in-depth measures which are both quantitative and qualitative in nature.
FI continuously develops its methodology to improve its supervision.
