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Our viewpoint

Achieving
a value-adding ORSA

The ‘own risk and solvency assessment’ (ORSA) process is intended to be at the heart of Solvency II and from our experience, many insurers have found real value from the ORSA. However, some insurers are still struggling to make it work for the business.

Here are our five top tips for a value-adding ORSA.

1. Keeping it real

A good ORSA helps you articulate how changes to risks and opportunities might affect strategy and capital requirements.  However, as in everyday life, things don’t always happen as planned.  Your ORSA should reflect how you would react to an unexpected deviation in experience or change in risk exposure.  This allows you to manage stakeholder expectations and demonstrate your risk management and governance processes.

2. “O” stands for “Own”

ORSAs are like fingerprints; no two should be the same. Stress and scenario testing can be a key tool for personalising your ORSA.  Develop a wide range of realistic stresses and scenarios, demonstrating how these are considering all your material risks.  A bespoke ORSA report is also a great ‘go to’ document for newcomers (eg non-exec directors, other management and supervisors) who need to quickly familiarise themselves with the firm’s risks and how they’re managed.

3. The ‘so what?’ factor

An ORSA needs to be forward-looking, with a range of plausible scenarios to capture the real life implications (or ‘so what?’ factor) of the key risks.  Your scenarios should encourage open debate to highlight real life risks.  Trim the scenarios that aren’t adding value and explore scenarios that are.  The rewards are great – a healthy risk culture that will help you weather the storms and take advantage of opportunities that arise.

4. Raising the standard… formula

You are expected to assess the standard formula (SF) required capital as part of the ORSA, and to explain how well the SF reflects the actual risks of the business.  This isn’t a one-off assessment.  As the business and the environment evolve, consider SF appropriateness on an on-going basis and make sure it is captured by your ORSA framework. 

5. Go on record

Produce a ‘record’ of each ORSA, to serve as an audit trail of the process and document the outcomes.  This record should contain much more information than the ORSA report.  Don’t under-estimate the time and resources required to adequately comply with these requirements and ensure that producing the report is already part of your Solvency II planning.

Cat and Rob authored an article on ORSA’s in Insurance ERM, ‘Five tips for ORSA success’.