OSFI - ORSA Flashcards

1
Q

What is the general goal of the ORSA?

A

To enhance the insurer’s understanding of the relationship between risk profile & capital needs.

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2
Q

Does OSFI approve an insurer’s ORSA?

A

NO, but OSFI will REVIEW a company’s ORSA as part of its assessment of the company.

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3
Q

What is the relationship between ERM (Enterprise Risk Management) & ORSA?

A

ERM & ORSA should be WELL-INTEGRATED so that analyses and results are consistent between them.

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4
Q

Identify ORSA’s key elements. (5)

A
  • RISK identification & assessment
  • RELATE risk to capital
  • Oversight
  • (M&R) MONITORING & REPORTING of risks
  • (I&O) INTERNAL controls & OBJECTIVE review
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5
Q

Describe the ORSA key element ‘Risk Identification & Assessment’.

A

To identify & assess the materiality of foreseeable & emerging risks.

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6
Q

Describe the ORSA key element ‘Relating Risk to Capital’. (3)

A
  • set ICT (Internal Capital Target) using stress-testing techniques
  • must WITHSTAND a specified loss without falling below (Supervisory Capital Requirements)
  • review reasonableness and appropriateness of the risk profile and capital requirements in the context of the board approved risk appetite and risk tolerance
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7
Q

Describe the ORSA key element ‘Oversight’.

A

Sr Mgmt Responsibility: Should have a good understanding of :

  • nature and significance of risk exposure
  • risk mitigants
  • risk management methods
  • capital adequacy
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8
Q

Describe the ORSA key element ‘Monitoring & Reporting’.

A

ANNUAL REPORTS to Board of Directors and Senior Management on risk profile & capital management.

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9
Q

Describe the ORSA key element ‘Internal Control & Objective Review’.

A

REVIEW for accuracy, integrity and reasonableness.

OBJECTIVE REVIEWER: internal or external auditor OR skilled professional not involved in the ORSA process.

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10
Q

Is ORSA process the same for all federal insurers?

A

YES and NO:
- key elements are the same (make sure to list them)
BUT
- specifics differ by company DEPENDING on the risk profile & NSC (Nature/Scale/Complexity) of their operations

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11
Q

Should ORSA be used to set ICT (Internal Capital Target)?

A

YES, an important step of ORSA is to set the ICT, since the ICT considers insurer-specific risks.

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12
Q

What is the relative importance of quantitative and qualitative aspects of ORSA?

A

The quantitative and qualitative aspects of are relatively important.

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13
Q

Regarding ORSA key element #2 (Relating Risk to Capital), identify the possible approaches to calculating the ICT. (3)

A
  • COMPLEX INTERNAL model: for complex risks
  • SIMPLE MODEL: with conservative assumptions
  • QUALITATIVE: includes expert judgement for difficult-to-quantify risks
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14
Q

Describe the similarities between DCAT (now FCT) & ORSA. (3)

A
  • both are concerned with risk identification & control
  • both are concerned with capital requirements
  • both are submitted to BoD (Board of Directors) & regulators
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15
Q

Describe the differences between DCAT (now FCT) & ORSA. (3)

A
  • GUIDELINES: FCT uses CIA SOPs, ORSA uses OSFI guidelines
  • METHODS: FCT quantitative only, ORSA both qualitative & quantitative
  • REPORT: FCT by AA, ORSA by management responsibility
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16
Q

Identify advantages of ORSA over MCT. (4)

A
ORSA:
- includes ALL material risks
- uses stress-testing to set the ICT
- qualitative (as well as quantitative)
- admits assessment of internal controls
MCT: doesn't do the things listed above