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MIMA Conference, December 2nd 2011 1
Insurance - An Industry in Evolution
Supervisor Review Lets talk about ... ORSA (Own Risk & Solvency Assessment)
December 2nd 2011 Claus Brinkmann
© 2011 Deloitte2
“Let's talk about all the good things. And the bad things that may be. Let’s talk about …“
2
• Preliminary Remarks
• What is „ORSA“?
• Implementing ORSA
• Vision• Methodology• Process• Documentation & Report Design
• ORSA and Use Test
• Summary
Appendix:ORSA across Europe - A Deloitte survey
Content
…ORSA
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© 2011 Deloitte
Preliminary Remarks
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© 2011 Deloitte
Insurance An Industry in Evolution
4
t = 0 t = 1 t = 2 t = 3
Premium
Losses
Expenses
CoCEconomic
value added
Measure of sucess
Main advantage
Main disadvantage
Economic Value Added
Fully captures the economics of
the business
Complexity
- - > 0
Premium
Losses
ExpensesTechnical
result
Measure of sucess
Main advantage
Main disadvantage
Technical result
Simple metric while taking the
quality of the business into account
Does not capture the true
economics the business
Premium
Volume growth
Measure of sucess
Main advantage
Main disadvantage
Volume growth
Simplicity
Does not consider quality of the
business
Bigger
Is
Better!
Source: J. Schneider
And this is by the way the
SII/EIOPAapproach!
Volume vs Value & Risk based
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© 2011 Deloitte5
Anthony Hilton (Evening Standard 17 September 2010):
"The real point is that effective regulation should be a top-
down process, not bottom up. What insurance needs, …, is
for seriously experienced business people to look at the
firm's business plan and challenge whether it has the
competence to execute it well and the risk controls to alert it
in time if something goes wrong.
That has to be done at board level. If the regulators are
satisfied, there is no problem. If they are unconvinced, they
demand more capital or a change in the plan.
What we are getting instead is micro-management of the
worst sort ..., through its (Solvency II) models, trying to tell the
industry how to manage itself. ”
Insurance An Industry in Evolution
Is ORSA the right solution to bring together the nitty-gritty details of the Pillars?
MIMA Conference, December 2nd 2011
© 2011 Deloitte6
• ORSA is a Board Topic
• ORSA is a communication exercise (internal & external)
• ORSA pulls together all the existing ERM components
• ORSA aligns risk appetite and business strategy
• ORSA is forward looking risk management
• ORSA is focusing management attention on sensitive risks
• ORSA might uncover natural hedges
• ORSA is focused on regular, current and relevant information
• ORSA brings better risk awareness and foresight
• ORSA enables more insightful decision making
• ORSA improves capital efficiency
• ORSA reduces cost of capital through better management of volatility
• ORSA gives a chance for internal models, without the formal approval process!
Insurance An Industry in Evolution
Yes – ORSA is the approach to force insurers to pull together all the bits & pieces they have worked on so far – it facilitates an integration of the Solvency II Pillars and links solvency capital and risk management!
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© 2011 Deloitte7
ORSA – not limited to European Solvency DiscussionsOn the Top of the Insurance Agenda – worldwide!
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© 2011 Deloitte
ORSA: Current Status … getting to the finish line
Source: State of discussion about ORSA, Sibylle Schulz; BaFin, Bonn 13.10.2011
Consultation09/2011 –01/2012
Pre-consultation
winter 2010/2011
Separate ORSA level 3
paper
As from April 2012: review of
comments
Remarks for standalone and group
ORSA
Level 3 ORSA: Guidelines & Recommendations
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© 2011 Deloitte
What is ORSA?
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© 2011 Deloitte
ORSA is NOT….
10
• ORSA is NOT a mechanic calculation
• ORSA is NOT all about capital (need for non Pillar 1 risks)
• ORSA is NOT the basis for regulatory capital requirements (SCR)
• ORSA is NEITHER an internal model NOR creates it a requirement
for an internal model via the back door
• ORSA is NOT complied with by just producing a report or by
filling templates
• ORSA is NOT written down in detailed guidelines
• ORSA is NOT a “one-off” exercise
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© 2011 Deloitte
Internal Model Governance
Pillar 1
•SCR / MCRStandard Formula
SCR Partial / Full Internal Model
Internal Model Tests & Standards
Risk Governance (art. 41 -49)
Own Risk Solvency Assessment
(ORSA)
Use Test of an internal model
Disclosures
RegulatoryReporting
System of Governance of an internal model
Pillar 2 Pillar 3
ORSA is…… an essential part of the Risk Management System
11
Article 45 requires the undertaking to
perform a regular ORSA as part of the risk
management system. The main purpose of
the ORSA is to ensure that the undertaking
engages in the process of assessing all the
risks inherent in its business and determines
its corresponding capital needs. To achieve
this, an undertaking must have adequate,
robust processes for assessing,
monitoring and measuring its risks and
overall solvency needs, while ensuring that
the output from the assessment is
embedded into the decision making
processes of the undertaking. Conducting an
assessment of the overall solvency needs
properly involves input from across the
whole undertaking.
.
* Source: Section I: General considerations No. 4.1.
Consultation Paper On the Proposal for Guidelines onOwn Risk and
Solvency Assessment
EIOPA-CP-11/008; 7 November 2011
“Solvency II is not just about risk measurement and quantification,
rather it is about effective
governance and risk management”
CEIOPS, Lessons learned from the
crisis (Solvency II and beyond)
“The processes companies shall
have in place as part of the ORSA
are at least as important for the
undertaking as the final result”
(CEA response to CEIOPS’ ORSA)
… and, don’t forget that it is part of
the dialogue with the supervisor
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© 2011 Deloitte
Source: BaFin: Solvency II-Konferenz, Wasserwerk, Bonn / 20. Juni 2007
Supervisory Processes in the European Directive (Pillar 2)
Business Organisation
Fit and Proper
checking of
Board/Key
Personnel/sup Board
Outsourcing
Actuarial Function
Governance
Risk Management
„OWN RISK AND SOLVENCY ASSESSMENT“ (ORSA)
Internal Audit
Supervisory Review Process (SRP)
Early Warning System
SRP Conclusions
Whole range of prudential measurese.g.:§ Pillar II add-on§ Change of Eligible Elements
(Amount/Quality)§ Full/partial Internal Model
Supervisory evaluation of on-goingcompliance with minimum standards and requirements
§solvency control levels§cooperation between
supervisory authorities§supervisory methods§supervisory tools§supervisory powers§fit and proper checking§peer reviews§extension of the scope
of the business§authorisation of a new
insurance undertaking§on-going supervision,
both on-site and off-site.§Limits on eligible assets
Harmonisation of Supervisory Practices
Audit
fully satisfactoryNot
fully satisfactoryPillar / SCR
(Solvency Capital
Requirement)
Dialoge
Dialoge
Capital
Assess and review of all processes for compliancewith laws, directives and administrative provisions
Evaluatetion of all risk and the ability of the undertaking to assess them
Access and review of the Governance System
ORSA is …… the key element of Solvency II and brings the three pillars together
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© 2011 Deloitte
ORSA is...... explained by of the German Supervisor (BaFin)
The ORSA does not presuppose the existence of an internal model. If an internal model is available, it has to be included.
For regulatory purpose For purpose of insurer
Qualitative
Quantitative
Business plan (How does it affect the internal capital
requirements?)
Plan to ensure the regulatory
solvency capital
Explanation of differences in
capital requirements
Internal capital planning
SCR calculation
1
2
3
5
4
BaFin: Solvency II-Konferenz, Wasserwerk, Bonn | 20. Juni 2007
Within the strategic planning the
board of directors needs to
explain the targets focused on
and the implications on the total
risk situation
ŁŁŁŁ Risk; capital; result as the
basis of a risk (and value) based
management
On the way to the ORSA the risk
reporting “AS IS” needs to be
extended by some explanations
of the mid term planning
background and assumptions.
The link to the business and the
risk strategy should be
explained.
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© 2011 Deloitte14
ORSA is...… to be seen in conjunction to different other articles of the Directive
Article 48Actuarial Function
Article 246Groups
Article 120Use Test
Article 213 Prudent Person
Principal
Article 36Reporting
Article 45 ORSA
&Level 3
Guidance
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© 2011 Deloitte15
ORSA is...... complex
• Business performance
• Performance by risk type
• Type and quality of own funds
• Risk Profile
• Identify, measure, monitor, manage and report short and
long terms risks
• Horizon Scanning
• Business Strategy
• Business Plan(s)
• Performance Targets
• Risk Tolerance Limits/Risk
Appetite
• Business continuity planning
• Contingency planning
ORSA• Process
• Reporting
• Decision Making
Risk Management
• Modelling (including approved
internal model)
• Capital requirements
• Technical provisions
• Stress and scenario testing
• Projections
Actuarial FunctionBusiness Strategy & Planning
Acknowledge the Dependencies
MI & Data
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© 2011 Deloitte16
ORSA is ... ... a communication challenge!
Board / Executive
• Setting overall business strategy and risk appetite
• Engaging with stress tests & scenario results
• Sign-off of ORSA deliverables
Actuarial Function / Finance
• Developing risk measurement tools
• Investigating risk-reward optimisation
• Stress & scenario analysis / financial projections
Strategy / Asset Management
• Business planning
• Asset allocation
• Input on strategic direction
External Organisations / Internal Audit
• Challenge, benchmarking and (independent) review
• Ensuring appropriate control framework
• Quality assurance
Risk Management Function
• Managing the ORSA Process
• Producing ORSA Report
• Developing risk reporting templates (with others)
• Managing scenario testing and (reverse) stress testing
A sufficient ORSA is not possible without working across the functions
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© 2011 Deloitte
Implementing ORSA
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© 2011 Deloitte
ORSAKey ORSA Challenges: Implementation Requirements
18
�Design and build ORSA architecture and process linked to business and risk strategy
�Define roles and responsibilities for ORSA process
�Design information and data flow requirement for generating ORSA report from all business departments
�Design and document process map for ORSA production (allow for dataflow, check/validation points and board input and sign-off)
�Develop process so that ORSA results are captured in SFCR and RSR
�Develop a methodology and procedure for explaining and demonstrating an understanding of the extent to which the firms risk profile deviates significantly from the assumptions underlying the SCR (standard formula or internal model).
ORSA Methodology &
Process
ORSA Reports
`ORSA
Vision & Policy
�Description of business model and the risk profile (long- and short-term)
�The methodology, assumptions, and justifications in the ORSA results
�Reconciliation of the ORSA with the SCR (internal model and standard formula)
�Description of data sources, systems and controls
�Description of how the ORSA is used in the business (risk management, strategic decisions, operations)
�Description of risk tolerance limits (Capacity, Appetite and Limits framework)
�Description of governance system and justification
�Approval and sign-off by the management or administrative body of the assumptions and results
�Development of ORSA vision to identify features and business requirements
�Define aims and objectives, purpose, identification of key stakeholders,
�Specify granularity requirements for embedding, frequency of reporting,
�Agree scope and requisite inputs/outputs,
�Linkage to other activities, key dependencies
~15%
~70%
~15%
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© 2011 Deloitte
Key Input and Enablers ORSA Tasks ORSA Report
Risk Appetite and Strategy
Risk Profile
Risk Governance
Business objectives
Internal Model Framework
Targetoperating model
-Validate Process
-Data
-Assum
ptions
-UR
-MR
-CR
-OR
Economic Capital engine
Collate info to ORSA
Validate capital output
Oversight of the internal model
Risk function Input
Validation of Risk
Set Risk Appetite
Set Performance Target
Board Input
It represents the formalization of the results of the own risk solvency assessment performed by an undertaking and provides mainly a description of:
- ORSA Vision
- System of Governance and justification
- How ORSA is embedded in the decision making process (Risk Strategy, Capital allocation, risk tolerance and operating limits framework) and in the Operating Model
- Risk profile (long- and short-term), the assumptions used and justifications
- Methodology used and justification
- Internal evaluation of capital needs and Reconciliation of the ORSA with the SCR (internal model and standard formula)
- Availability of own funds and matching with criteria of eligibility for SCR
- Approval and sign-off process
Our recommended approachHow do we implement and embed the ORSA: The ORSA work-packages
Set up Governance
Define target Operating Model
Top Management
§ Define, Write and approve ORSA Vision & Policy
§ Define frequency and time horizon for ORSA, how to assess changes in risk profile and metrics to be used
§ Ensure ORSA covers all material risks, both the ones considered in the SCR and other non standard risks (e.g. Reputational , Liquidity)
§ Design and build ORSA framework embedded in the, Governance , risk strategy, capital allocation and in the Operating Model in in terms of
- Organisational Structure: Roles of Risk function , operating function, and Committee; Organisational Chart, ...
- Operational Structure: Value Chain :processes, procedure/methodology and tools for
- performing Own Risk Self Assessment - drafting the ORSA Report
- Reporting: information and data (Data Modelling) useful to fulfil the Reporting framework to:
- perform Own Risk Self Assessment. Some examples of reporting to support the decision making process are: Capital Allocation Reporting, Risk Profile Reporting, Risk limits Reporting, Risk Monitoring Reporting etc.
- draft the ORSA Report (Data Modelling) taking into account that the RTS (NOT publicly disclosed) and the SFCR (publicly disclosed) shall include information provided by the own risk solvency assessment
- IT system & Tool: Map of IT solutions and tool to run internal models or manage risk factors etc.
ORSA Process & Methodology
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© 2011 Deloitte
ORSAPart of the Solvency II (fast close) processes
Specific reporting processes need to be defined, but because they are situated at the end of the
reporting chain they cannot be dissociated from upstream processes.
1. Data processes2. Calculation processes3. Valuation of assets and
other liabilities
5. Reporting processes
4. Consol. &aggregation processes
Life:
Contracts and
claims
Non life / Health:
Contracts and
claims
Asset Data
Accounting Data
Data sourcesData
CollectionCalculation
Conso. and aggreg.
Reporting
SFCR &
RSR Group
SFCR &
RSR Solo
Ris
k C
lass a
ggre
gato
r and c
onsolid
ation
Risk
Market
MVL & Tech
Provisions Life
MVL & Tech
Provisions Non
Counterparty
Default Risk
Operational
Risk
Economic
Scenario
Generation
Cash Flow
projection Life
Cash Flow
projection
Non-life /
Health
Cash Flow
projection
Assets
Ext
ract
Tra
nsfo
rm a
nd L
oad
Cohere
nce c
ontr
ol, v
alid
ation
and s
ign o
ff
Valid
ation a
nd s
ign o
ff
Monitor and Control
Results:
SII Balance
sheet, Capital
Requirements
Operational
Losses
Counterparty
information
Life
Liabilities
Model Point
Assets
Model Point
Data Preparation
Experience
analysis and
assumptions
setting
External Market
Data
Cohere
nce c
ontr
ol, v
alid
ation
and s
ign o
ff
Life Insurance
Risk
Non-life and
Health Risk
Asset
Pricing
Internal
Reports
Life and Health
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© 2011 Deloitte
ORSA: Vision
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© 2011 Deloitte
ORSA Vision
The ORSA Vision represents the tool to introduce the ORSA within the Company / Group,
therefore it aims at giving guidelines for its implementation, considering the overall objectives
the Company wants to achieve and its specific environment (at both Group and Company level)
This chapter includes the objectives the Company / Group is willing to achieve with the ORSA Report both at Group and
Entity level
This chapter
describes how the
Company / Group
wants to document and communicate the ORSA process
This chapter
includes a high level description of the overall ORSA process
This chapter aims
at defining the scope of the ORSA report and how to apply the proportionality principle to the
different entities
This chapter deals with the
risks assessment to be documented in the ORSA report, for both quantifiable and non quantifiable risks
ORSAVision
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© 2011 Deloitte
ORSA Vision StructureScope and Proportionality
The ORSA will be structured to consider the application of the proportionality principle, in order to set up an
adequate process which will fit the nature, scale and complexity of the risks profile managed by each
single entity part of the Group
The Group could decide to apply
the proportionality principle in order
to make the performance of the
ORSA the most adequate for its
entities, in order to avoid an undue
workload.
Different criteria could be applied
for the determination of the different
levels of the ORSA, i.e.
• Inclusion in the Internal Model
• EEA / Non EEA entity
• Amount of premiums / reserves
• Amount of Economic Capital
Level 1 ORSA
Level 2 ORSA
Level 3 ORSA
EEA
Entities
Non
EEA
Entities
PROPORTIONALITY
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© 2011 Deloitte
ORSA:Methodology
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© 2011 Deloitte
Identify risks
• Identify business risks, describe and quantify them(intuitive riskapproach)
• Identify major risksfor the company
Compute risk profile and solvency margin
• Determine the ORSA capital (Economic capital)
• Check adequacy of standard formula/internalmodel
Enhance a prospective view on risks and solvency
• Link strategic vision and riskmanagement
• Prospective view of risks and solvency
• Capital adequacy and risk mitigation measures
Manage risk
profile
• Compliance withrisk appetite
• Monitoring significant changes in the risk profile
• Continuous monitoring of compliance with solvency requirements and ORSA capital
Monitor and manage risks
• Incorporate risk in daily management, particularly in terms of operational limits or warning thresholds
• Establish riskpolicies
ORSA
Risk appetite (Risk strategy and policies)
To
ols
• Exposures’ dashboard’: Riskmetrics, includedthose not included in the standard formula: strategy, reputation, concentration, …
Pro
cess
Ob
jecti
ves
Strategic plan
Use test : ALM, profitablity, underwritting, reinsurance, ….
• Monitoring indicators:proxy for ongoing evaluation of the solvency depending on the sensitivity of ORSA capital to these indicators, consistency of bottom-up and top-down vision,…
• Risk monitoring reporting: Operational limitsmonitoring for eachindicator, Strategicplan/projection assumptions follow-up, montoring of warning threshold and actions to beimplemented
• Projection assumptions: economic and technicalassumptions, stress tests and scenarios planning,…
• ORSA economiccapital calculation: confidence level, type of calculation, calibration of stress tests, consistency with the standard formula or internal model…
Reporting
The ORSA methodsElements to develop : focus on quantitative aspects
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© 2011 Deloitte
The ORSA must include the assessment of the Overall Solvency Needs of the Company / Group on a
forward – looking basis. This means that the Solvency Position must be projected on a selected time
horizon (normally the one used in the strategic planning)
Year t1Year t0
Own Funds
Economic Capital
Solvency
Ratio
Own Funds
Economic Capital
Solvency
Ratio
Actual Risk
Profile
Year t2
Own Funds
Economic Capital
Solvency
Ratio
Year t3
Own Funds
Economic Capital
Solvency
Ratio
Projected Risk Profile
The dimension
considered in the
assessment could be also split into
• Analysis per risk
category
• Analysis per BU (for
Groups)
• Analysis per LoBs
The ORSA methodsProjection
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© 2011 Deloitte
0 1 2 3 Year
Assets
Surplus
SCR
BE + risk
margin
Assets
Surplus
SCR
BE + risk
margin
Assets
Surplus
SCR
BE + risk
margin
Assets
Surplus
SCR
BE + risk
margin
Regulatory
economic balance
sheet
Ł Are the capital needs still
covered? Which recapitalisation strategy to consider?
Ł Is the undertaking’s risk profile still acceptable?
Calculationkernel
Calculationkernel
Calculationkernel
Calculationkernel
ORSA requires that the undertaking’s overall solvency needs are met at all times over the strategic plan’s time horizon.
Central scenario(s)
Stress test(s)Revenues
Ł Are the capital needs still
covered? Which recapitalisation strategy to consider?
Ł Is the undertaking’s risk profile still acceptable?
Ł Are the capital needs still
covered? Which recapitalisation strategy to consider?
Ł Is the undertaking’s risk profile still acceptable?
The ORSA methodsProjection
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© 2011 Deloitte
The ORSA methods Stress testing and Scenario planning
• Regulators and market participants have come to realize the
limitations of stochastic models. Thinking through scenarios and
stress levels, on a partly judgmental basis, is considered key to
fully understand risks
Beyond stochastic
models
• Scope of stress testing in ORSA is larger than usually thought:
– Sensitivity measures: impact of a move in one particular risk
driver, the source of the shock not being identified;
– Scenario analysis: assess ability to absorb exceptional but
plausible events with simultaneous moves in a number of risk
drivers;
– Scenario analysis through time: essentially capital planning
simulation for a most-likely non stressed scenario.
• Is the undertaking able to absorb such an event?
• How is the risk and capital structure altered in the long run?
• Are the limits, targets or objectives of the risk appetite still met?
• What are the answers we can provide to identified solvency
issues?
Use results to draw useful conclusions
Some confusion on terminology
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Liquidity risk
• Liquidity Risk framework based on
‒ Liquidity risk assessment (at both
Group and Entity level)
‒ Liquidity contingency plans
• Liquidity Risk assessment based
on the excess liquidity, the
difference between
‒ Available liquidity resources
‒ Required liquidity
On the above dimensions stress tests
are performed, including
• Distressed financial markets (asset
price and liquidity)
• Confidence crisis (increased lapses,
decreased premiums, no new
business)
• Natural catastrophes (windstorm,
flood, etc.)
• Liquidity Risk managed also with
monitoring of the Group debt
position
Reputation risk
• Reputation risk management aims
to three main objectives
‒ Proactively manage reputation risk
‒ Define accountability for reputation risk
across the organisation
‒ Implement proactive reputation risk
management, which consists of
1. Identification of risks
Made through the monitoring of
traditional media and social media,
existing surveys and reports of key
stakeholder groups and identification
of issue or negative perceptions
2. Prioritization of risks
Based on a set of variables and a
formula which allow to obtain the
sensitivity of any issue identified
3. Mitigation of risks
Based on proactive management of
the issue identified
4. Crisis communication
Based on a set of procedures and a
communication handbook
Strategic risk
• Strategic Risk framework based on
three principles
‒ Screening of the strategic and
competitive environment
‒ Reviews of consistency and relevance
of strategy
‒ Dialog between entities and the Group
• Strategic Risk assessment based
on different processes, on which the
above principles are applied
‒ Competitor’s review
‒ Growth benchmark
‒ Portfolio review
‒ Strategic plan
‒ Emerging risk analysis
‒ Quick screen
‒ Ad hoc strategic studies
‒ Strategic Audit reviews
‒ Strategy conferences & Management
training
• Recommendations and issue arising
from the above assessment are
considered in the strategic planning
The ORSA methods Non Pillar I Risks: Example of assessment / management methodology
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ORSA:Process
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© 2011 Deloitte
Risk
Tolerance &
Appetite
Business & Risk Strategy
Stress- &
Scenario
Testing Risk
Identification
Risk
Measurement
Monitoring
& Reporting
Risk Culture
ORSA ProcessORSA óóóó ERM: There is no real difference
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Plan ok. ?
OR
SA
Re
po
rt
No
1) Solvency margin requirements
ImplementationPlanning phase
Plan implementation
(KPI)
Risks monitoring (KRI)
Capital allocation and
funding
Solvency valuation
Strategic plan
Risk tolerance
needs
Mission statement
Risk appetite
Risk profile
Qualitative analysis
No go : strategic plan review
(Independent) review
Permanent respect of regulatory solvency requirement
Financial communication
Permanent management of the risk profile
and capital
Operational plan
(KPI)
Risks limits(KRI)
ORSA ProcessThe link with strategic plan
phase
The strategic plan process and ORSA are to be closely coordinated
Own risk assessment
Link to the Internal Model
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ORSA ProcessRoles and responsibilities
Risk Committee
Risk Management
Risk Management, Strategic planning
& other key functions
Risk ManagementRisk Committee
Internal Audit
Management Board and/or
Board of DirectorsProcess design &
implementation
Process running &
output production
Process validationResult validation
(Independent)
Review
ORSA sign-off and
use in decicision
making
ORSA policy
approval
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Integrating ORSA into business planning
‒ Advanced companies will have an ICA projection incorporated into their business planning cycle.
‒ This is often at the end of the process as a check that the plan can be supported with existing
capital.
ORSA ProcessComparing existing processes
July August September October November December January February
Standard planning cycle
Business unit plans
Consolidated group plans
Management oversight
Capital modelling
Board approval
Source: Groupe Consultatif
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ORSA means that capital modelling and management oversight should be integrated into the planning
cycle at a much earlier point of time.
ORSA ProcessComparing existing processes
July August September October November December January February
ORSA planning cycle
Business unit plans
Consolidated group plans
Management oversight
Capital modelling
Board approval
Group capital modelling
Source: Groupe Consultatif
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ORSA: Documentation & Report Design
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ORSA ReportDocumentation; Documentation; Documentation
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ORSA Report Content overview
In our experience, the ORSA report covers the following topics:
Executive Summary
Risk management system
Overview of ORSA methodology and process
ORSA process and methodology for quantified risks
ORSA process and methodology for other material risks
ORSA results
Actions to meet capital requirements over the period
Independent validation
Review and sign-off
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ORSA Report Flow of activities
Definition of the
structure of the Report
Identification and
definition of enablers
ORSA Report process
designORSA Policy
• Definition of the table of content of the
ORSA Report and
definition of a ORSA Report Mock Up
• Performance of
interviews with all
areas involved in the
ORSA Report
production in order to
identify all the information needed and all processes who manage them
• Identification of the
workflow of activity to fill out the ORSA Report and definition
of guidelines for its completion
• Definition of the
ORSA Policy as part
of the overall Risk
Management System
of the Group
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Strategies
Other guidelines
ORSA ReportImpact on the management of documentation
ORSA-Vision & Policy
ORSAInputs Report
The end of the ORSA-Process is the ORSA-Report.
• What is the beginning?
• What is the general framework?
• Which documents are required by ORSA?
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© 2011 Deloitte
ORSA ReportRequires a stable basement
Mission
Investment Guidelines
Business
Strategy
Risk
Strategy
Corporate
Governance
Code of
Ethics
Rules of
Procedure
Compliance Plan
Data quality Guidelines
Docu. & Info Guidelines
Op-Risk Guidelines
Emergency Guidelines
Compliance Guidelines
ALMGuidelines
Rating Guidelines
Derivate/SPVGuidelines
Liquidity Guidelines
ORSA means, ensuring the existence and an
appropriate design of these documents and starting
measures, if gaps occur.
Vision
Remuner.Guidelines
Fit & Proper Guidelines
Audit Guidelines
Audit PlanInt. ControlGuidelines
Outsourcing Guidelines
Reserving Guidelines
Reinsurance Guidelines
Underwriting Guidelines
Risk Accumulation-Guidelines
Risk management Guidelines
Claim managementGuidelines
ORSA-Guidelines
ORSA-Report
ALM StrategyInvestment
StrategyReinsurance
StrategyCredit risk Strategy
Underwriting/ Reserv. Strategy
Quantitative long-term planning
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ORSA in Practice
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ORSA and the Use TestThe overlap
• Business Planning• Capital Management• Review of Risk Appetite Statements• Risk profile incl. all material risks• Risk measurement & assessment
processes• Management actions & decisions• Quantity & quality of own fund• ...
ORSA Use Test
Source: GIRO 2010
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Use Test for the internal model Several examples of the usage of the internal model
Governance systemRisk management
systemDecision process
Capital judgment and
assignment
• Link between the
internal model and the
technical provisions
• Link between the output
of the internal model
and the external
reporting
• Link between the
internal model and the
technical
implementation of the
actions of the
management
• Measurement of
material risks
• ALM
• External risk reporting
• Internal risk reporting
• Design of the
reinsurance program
• Development of the risk
strategies
• Efficient usage of capital
• Investment decisions
• Determination of the
targets for return on
capital and rewards
• Product development
and pricing
• Business planning and
strategy
• Policy for the
underwriting of
insurance policies
• Capital management
• ORSA
• Calculation of the SCR
• Assignment of economic
capital per entity,
business line risk of
business line
• Assignment of
solvability capital per
entity, business line, risk
of business line
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© 2011 Deloitte
ORSA & Use test DeliverablesHigh level examples of ORSA dashboard output
1. Balance Sheets 2. Profit & Loss
5. Risk Profiling4. Earnings & Cash Flows
3. Risk Capital
6. Performance Measurement
• Summary solvency position
• Projections of technical
provisions, net assets, etc.
• Analysis of change
• Scenario analysis
• ...
• Future profit projections by
line of business on an
annual or monthly basis
• ...
• Risk capital by risk class
• Diversification benefits
• Reconciliation of internal
model SCR and economic
capital
• ...
• Best estimate, optimistic
and pessimistic scenarios
• Projected earnings
• “What if” scenarios
• ...
• Ongoing monitoring and
capture of risk data
• Analysis of risks not adequately captured in the
SCR
• ...
• Analysis against KPIs
• ...
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Summary
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Points to consider for an ORSA
A clear, logical and documented ORSA should cover & consider:
Ø What is the current state of your business (results, SCR, etc)?
Ø What are you doing about it (responsibility; control & mitigation, processes, Data)?
Ø Do you have the right people in place (fit & proper)?
Ø What are your business risks, your risk appetite, the limits?
Ø What is material (impact on current capital)?
Ø Do you have enough capital (to cover all risks today and tomorrow)?
Ø What is included? What is excluded? Why? (Group effects etc.)
Ø Why are you following this approach (evidence & documentation)
Ø What are your plans (continuous view on the business)?
Ø What might be the range of outcomes & costs (stress tests/scenarios)?
Ø How can/will you cope with such outcomes (capital sources)?
Ø When do I have to review my position (triggers)?
Ø How have things changed (from last review)?
© 2011 B&W Deloitte GmbH
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© 2011 Deloitte
… Questions ...
… last chance to participate in the consultation
until January 20th 2012 ...
https://eiopa.europa.eu/consultations/consultation-papers/index.html
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© 2011 Deloitte
B&W Deloitte GmbHRosenheimer Platz 481669 MünchenDeutschland
Tel: +49 (0)89 29036 8540Mob: +49 (0)172 2463 513cbrinkmann@deloitte.dewww.deloitte.com/de
Claus BrinkmannPartner
Actuarial & Insurance Solution
Member of
Deloitte Touche Tohmatsu
Contact
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© 2011 Deloitte
ORSA:Appendix
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© 2011 Deloitte
ORSA across EuropeA benchmark about the ORSA Report
The panel of this benchmark comprises 13 companies across Europe and has been
collated on the basis of our internal knowledge rather than any direct contact with the
organisations in question
Main themes covered in our benchmark are
• Frequency
• Nature
• Content / Themes
• Timing of production
• Engagement in design
• Length
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Frequency 1/2How often the ORSA will be produced
The majority of the companies analysedplan to produce their formal ORSA annually. Less than 10% expect to produce a monthly ORSA Report
The majority of the companies analysed expects to also use regular Risk Management Indicators (or similar) to support the annual ORSA
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Frequency 2/2Use of other Risk Management Indicators reports
No
Yes
69% of the firms anticipated that more frequent reports will be used to communicate risk and solvency MI
22% of the panel specified that this will have a monthly frequency with 67% of this sub-sample not known or to be determined
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NatureUse of other Risk Management Indicators reports
77% of the sample intend to use a combination of both static and dynamic information within their ORSA reports. Among the remaining 23%, only one firm intends to focus on streamlining the ORSA by removing as much static information as possible.
Over two thirds of the sample plan to take advantage of "Group ORSA" report to write a single ORSA report for entities contained within the Group
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Contents / ThemesWhat is included in the ORSA Reports
KeyThemes
Over two thirds of firms have these as key themes to the
ORSA report
62% of the panel plan to feature
decision making in the ORSA Report
50% of respondents plan to include
information on Model Governance
38% of the firms plan to
include information on their
business strategy
less than a quarter
anticipate information
on organisational
change
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TimingWhen the ORSA will be performed
Aligned with
Planning Process
52%
Year End
15%
Unknown / To be
determined
33%
Around 51% of the panel will be aligning the production of the ORSA report with their annual planning
process as opposed to just 15% planning to perform this at Year End. One third of the sample is either
unknown or to be determined
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Engagement in design 1/2Who has been engaged
15% of the sample have engaged the Board in the
design of their ORSA, however 46% of the sample
have engaged their Board Risk Committee. In 92% of the sample the CRO has already been engaged in the
design of the ORSA to date.
Interestingly none of the sample have engaged their CEO in
the design of their ORSA to date. About three quarters have
actively engaged the risk function in the ORSA design. Less
than half have engaged finance and just over half have
engaged 1st line stakeholders
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Engagement in design 2/2How the Board engagement is expected to be evidenced
The position is mixed over how Board engagement in the ORSA is expected to be evidenced. 38% of
the sample plan to use meeting minutes, 38% signing the ORSA off based on a full review of the
report, 23% to sign off based on a "light" review of the ORSA. On the latter, only one anticipates this
would be based on information contained on the ORSA in other disclosures
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LengthHow long will be the ORSA Report
Only 1 firm expects the ORSA report to be less than 40 pages in length (11 - 20 pages). 62% of the
sample anticipate the ORSA report between 40 - 100 pages long (31%, 41 - 60 and 31% 60 - 100
pages). Only 1 firm respondent was expecting a report length to be over 100 pages
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About Deloitte
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