4.

Solvency II Own Risk and

Solvency Assessment (ORSA)

Insurance and Reinsurance Stakeholder Group meeting

12 December 2011

Solvency II - ORSA
Development process of EIOPA guidelines on
ORSA
General framework
o objectives and means
o details on the ORSA requirements

Towards a formal opinion from the Insurance and

Reinsurance Stakeholder Group

Development process of
EIOPA guidelines on ORSA
2008:

January-March 2011:

CEIOPS
Consultation Paper
on ORSA

Pre-consultation on draft
guidelines

Discussion with
Insurance and
Reinsurance
Stakeholder Group

June 2011:

November 2011

Pre-consultation
stakeholders
meeting

Public consultation

20 January 2012:

IRSG to provide
formal opinion by
20 January

General framework
Solvency II Directive contains high-level principles
Recital 36 => important background information on ORSA
Art. 36 => ORSA will be reviewed by supervisor
Art. 45 => principles for the ORSA
Art. 246 => group ORSA

No Delegated Act details expected

Guidelines from EIOPA to specify the expectations

Objectives of ORSA in Solvency II

ORSA is a tool to improve the risk management of EU (re)insurers by
promoting a better understanding of the companys overall
solvency needs

disclosing sufficient and clear information on a companys risk

profile

enhancing the board responsibility not to take on more risks than

the capital base is allowing.

It all starts from the top

It is a core responsibility of the board not to take on more risks
than the capital base is allowing
Share
holder

Share
holder

Share
holder

Owners

Capital base

Selection of representatives

Capital for running the company

e.g. mitigating risks

Elected board

Day-to-day operation

Organisation
6

 and forms an integral part of the

Employees need to be fit to execute their tasks
business strategy

By written procedures
Implementation

Board of
directors

Reporting

Control

Audit

Commentary
What are the
requirements
corresponding to the
risk appetite of the
supervisory body?
The requirements
reflect how
important the
individual elements
are.

Day to day
business
7

 by asking the right questions.

Process steps
Identifying
risks

B: What are the risks that this company might face during the strategic planning period (e.g. 3-5
years)?
E: Delivers an overall picture of the risks pronounced in quantitative figures and qualitative terms
B: Decision on which risks are mitigated by capital and which are mitigated by management actions
only (e.g. reputational risk)
E:
B: Asks to quantify risks and develop suitable management actions for non-capital covered risks
E: Quantifies risk by use of the organisation and develops suitable management actions
B: How robust is the assessment of risks? What is the quality of key processes involved (e.g. claims
handling)?
E: Conducts sensitivity analyses and calculates impact on capital needs
B: What are possible future scenarios that we will have to navigate and what is the likely impact?
E: Conducts undertaking specific stress tests and calculates impact on capital needs as well as
developing suitable management actions
B: What external stresses have not been taking into account already?
E: Conducts external stresses, some of which might be contained in the SCR-calculation, and
calculates impact on capital needs as well as developing suitable management actions
B: What are the key assumptions underlying going concern?
E: Identifies key assumptions

Impact on SCR?

B: Is the resulting understanding of risks and assumptions reflected in the basis (assumptions,
structure, model) for the standard SCR-calculation or internal model, respectively
E: Evaluates impact and modifies SCR-calculation if needed

B Board of directors
E Executive team (by use of the organisation)

 and finding the right solutions

Identifying
risks

Risk picture

Overall solvency needs

Othe
rs

Meet with capital

and with mgt.

actions

Management actions for future scenarios:

Develop risk awareness and contingency
planning on a regular basis

Expressed in quantitative and qualitative

terms
Connects business planning to
overall solvency needs
Explicit identification of possible
future scenarios
Managing external stress
Assess quality of processes and
input
Proof of SCR-calculation
Review assumptions for SCRcalculation
Review risk picture in SCR-calculation

Impact on strategy
Impact on
SCR?

Review assumptions for business

model
Review control and governance
9

 for solo undertakings and groups.

Scope of the group ORSA:
o Includes third country undertakings, regulated non-EEA and
non-regulated undertakings
Overall solvency needs of the group:
o Covers all group-specific risks and interdependencies taking
into account the specificities of the group
o Key drivers of diversification
Group ORSA report:
o Language of the Group RSR, in case of single possibility to
rquire translation of solo parts for solo supervisors
o For single ORSA report: explanation on how subsidiaries are
covered and board has been involved in group ORSA
10

To conclude: ORSA in a nutshell

ORSA is a risk management process owned by the board which changes the
viewing angle from bottom-up to top-down and connects business
strategy and capital planning.
o Two main goals: The board should know that the company can afford
its strategic plan 3-5 years ahead including bumps on the way and the
board should know how to execute its strategic plan
o Introducing ORSA is a demanding task for the board
There is no fixed recipe for an ORSA
ORSA is not an internal model, nor a capital add-on
ORSA is an integral part of the business strategy and needs to be performed
at least annually, has to be performed whenever the risk profile changes
significantly, has to be documented and has to be reported internally and to
the supervisor
11

Towards a formal opinion of the

IRSG: areas of attention
Style
Question 1 Are the guidelines and recommendations clear and will they help the
undertaking understand what they are expected to achieve under the requirements
of the Solvency II Directive?
Content
Question 2 Are there any other areas in the scope of Articles 45 and 246 of the
Directive where guidelines and recommendations would be useful?
Question 3 Are there any practical or operational issues with the application
process which can be identified by undertakings? If so, how could they be
addressed?

12

Areas for discussion with the IRSG

Impact
Question 4 Do you agree with the analysis of the costs and benefits for the
implementation of the guidelines and recommendations? Are there other costs
and negative impacts EIOPA should consider? What benefits may flow from the
proposed guidelines and recommendations?
For example, what would be the potential impact of ORSA on the pricing,
design and availability of insurance products, the corresponding effects for
consumers and the wider social or economic impacts even if indirectly?

Other?

13

Thank you!