Post on 07-Feb-2017
Actuarial Society 2016 Convention 23 – 24 November 2016
ORSA Business Unusual: Exploring the value of a well defined ORSA processFrancois Berry and Susan
Hunt
Actuarial Society 2016 Convention 23 – 24 November 2016
GlossaryFrancois dozing off
Francois psyched
Francois trying to explain (CPD)
Francois slightly perplexed
CFO of an insurer
Regulatory Consultant Sue
2
1 x 1 6 / 3 3 - 0
2 x 2 4 + 1
2 x 3
Actuarial Society 2016 Convention 23 – 24 November 2016
Crowd Participation (Quick Poll)
• Q1: Who has been part of the ORSA process in an Insurance
Company?
• Q2: Who came out of that process and thought:
“Wow – this has been useful!” ?
Even though the US elections have shown that polls are useless
3
Actuarial Society 2016 Convention 23 – 24 November 2016
Agenda1. Business As Usual
2. Why BAU No Longer Exists
3. ORSA as a Saving Grace
4. What Are We Doing?
5. What We Should Be Doing
6. How to Improve Risk Reporting
7. Q&A
4
Actuarial Society 2016 Convention 23 – 24 November 2016
Business as Usual
5
Actuarial Society 2016 Convention 23 – 24 November 2016
Business As Usual (BAU) BAU (official Wikipedia definition) is the “Unchanging state of
affairs despite some difficulties.”
A situation that has returned to its usual state after an
unpleasant or surprising event (Quick reversion to normality)
By my own deductive reasoning:
Business unusual – is then a changing state of affairs because
of some difficulties – and not changing back to the usual state
6
Actuarial Society 2016 Convention 23 – 24 November 2016
Why BAU no longer exists…
7
Actuarial Society 2016 Convention 23 – 24 November 2016
Interconnectedness
8
Actuarial Society 2016 Convention 23 – 24 November 2016
When Politics and Markets Collide
9
Actuarial Society 2016 Convention 23 – 24 November 2016
Global Regulation
Title
RDR
Basel III
TCF
Solvency II
Conduct Risk
Reviews
10
Actuarial Society 2016 Convention 23 – 24 November 2016
ORSA as the saving grace… (The light at the end of the regulatory tunnel)
11
Actuarial Society 2016 Convention 23 – 24 November 2016
ORSA is a Control Cycle
Strategy
The Unknown
Optimal Capital/ERM
Your Risk Profile
Forward-looking
Actuarial Control Cycle
Be a professional
External
Environme
nt
12
Actuarial Society 2016 Convention 23 – 24 November 2016
What are we doing…. (The research referred to in the abstract…)
13
Actuarial Society 2016 Convention 23 – 24 November 2016
What most companies are doing…
Budgeting & Planning
Risk and Valuation Reports
ORSA Report
Compliance reports
Monthly Operational
Reports
Strategy Report
WTF?!
Solvency Report
Reserving Report
Monthly, Quarterly
and Annual Financial Reports
14
Actuarial Society 2016 Convention 23 – 24 November 2016
What we should be doing…
15
Actuarial Society 2016 Convention 23 – 24 November 2016
What should be happening
Monthly, Quarterly
and Annual Financial Reports
Budgeting & Planning
Risk and Valuation Reports
Compliance reports
Monthly Operational
Reports
Strategy Report
Solvency Report
Reserving Report
ORSA PROCESS ORSA Report
16
Actuarial Society 2016 Convention 23 – 24 November 2016
TITLE
Forward Looking
Strategy & Environment
Financial Results and Solvency
Policies, Risk Framework,Vision & Mission
Subtext…
Subtext…
Subtext…
Subtext…
Subtext…
The Report
Static ||Dynamic
Static || Static
Dynamic
17
Actuarial Society 2016 Convention 23 – 24 November 2016
Which now transforms the Board from BORED to engaged…
Update to the dynamic sections of your ORSA report
Past Future
18
Actuarial Society 2016 Convention 23 – 24 November 2016
How to improve risk reporting…
19
Actuarial Society 2016 Convention 23 – 24 November 2016
Improving Risk Reporting
• Well defined taxonomy
• Categories of risk
• Risk assessment
• Risk appetite and tolerance
• Accountability resides with the board
• Board and management should align risk appetite
• Structure should enable timely decision-making
• Can models be trusted?
• Are proxy models possible?
• Document models adequately
• Appreciate difference between SRM & ERM
• SRM focuses on adding business value
Capital Adequacy
AssessmentStrategy vs
RiskProper
GovernanceCommon
Risk Language
26
Actuarial Society 2016 Convention 23 – 24 November 2016
• Long and static reports
• Lack of forward looking analysis
• Focus on meeting compliance
• No one company was a leader across all the assessment criteria.
• Reports more concise • Improvement in:
looking forward, stress and scenario testing, the capital model
• ORSA still not used as tool• Move from annual to quarterly
process• Companies struggle to align ORSA
with BAU activities
THEMESEARLY DEVELOPMENTSLATER
UK ORSA Reports
20
Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Month 1 2 3 4 5 6 7 8 9 10 11 12Business planning / strategy
Risk and capital management
Risk strategy / appetite
Material risk assessment (‘Risk Identification’, ‘Stress and scenario testing’)
Forecasting (‘Risk projection’)
Economic Capital (‘Risk projection’)
Risk analysis
Capital allocation
Reporting
Boards and committees
Governance
Annual process¼
Monitor
¼ Monito
r
¼ Monito
r
¼ Monito
r
RMC RMC RMC Board RMC
Independent review and challenge
ORSA lite
ORSA lite
ORSA lite
Annual
ORSAQRT QRT QRT QRT
SFCR RSR
Update
21
Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Reporting and Monitoring
Board Involvement
Reporting and Monitoring
Board Involvement
Documentation, good reports
22
Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Reporting and Monitoring
Board Involvement
Reporting and Monitoring
Board Involvement
Documentation, good reports
23
Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Reporting and Monitoring
Board Involvement
Documentation, good reports
24
Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Board Involvement
Reporting and Monitoring
Board Involvement
Documentation, good reports
25
Actuarial Society 2016 Convention 23 – 24 November 2016
What I imagine…
27
Actuarial Society 2016 Convention 23 – 24 November 2016
“I have a dream…”
28
Actuarial Society 2016 Convention 23 – 24 November 2016
Conclusion• There is no such thing as business as usual (2016 can be used as evidence)
• All this regulation gave birth to something really useful – ORSA
• ORSA is quite ORSA…M! (He he)
29
Actuarial Society 2016 Convention 23 – 24 November 201630
Any Questions….
30