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Exam 6C - Fall 2023 > OSFI.ORSA > Flashcards

OSFI.ORSA Flashcards

1
Q

What is the general goal of ORSA?

A

Enhance the insurers’ 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 (Entreprise Risk Management) and ORSA?

A

ERM & ORSA should be WELL-INTEGRATED so that analysis/results are consistent between them

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4
Q

Identify ORSA’s key elements (5)

A

Comprehensive Identification and Assessment of Risks
Relating Risk to Capital
Oversight
Monitoring & Reporting
Internal controls & Objective Review

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5
Q

Discuss how an Own Risk and Solvency Assessment (ORSA) can help insurers assess their internal targets

A

ORSA is an internal capital assessment procedure that is tailored to an insurer’s own risk appetite and risk profile. It takes into account risks that are relevant to the insurer and helps the insurer develop and assess its internal capital target.

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6
Q

Describe the ORSA key element: Comprehensive Identification and Assessment of Risks

A

Identify & assess the materiality of forseeable & emerging risks that may have an impact on an insurer’s ability to continue operations, in both normal and stressed situations

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7
Q

Describe the ORSA key element: Relating risk to capital

A

Generally: each company determines its own potential risks and the capital it should hold for each of them, if any.

More specifically: insurer must set Internal Capital Target ratio using stress-testing techniques (taking into account nature, scale and complexity of the operations)
- Must WITHSTAND a specified loss without falling below (Supervisory Capital Requirements)

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8
Q

Describe the ORSA key element: Oversight

A

Board has the ultimate responsibility and Senior management should implement and manage the ORSA process and report key findings to the Board.

The ORSA should assist the insurer in its risk assessment, risk management and planning by exploring and assessing potential threats to an insurer’s capital and solvency positions

Senior management should have a good understanding of:
- Nature and significance of the risk exposures
- Risk mitigants
- Risk management methods
- Capital adequacy

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9
Q

Describe the ORSA key element: Monitoring & Reporting

A

ANNUAL reports to BoD & Senior Management on most material risks, the risk appetite, potential management actions, etc.

The ORSA report should contain sufficient information about the process, underlying principles, methodologies, key assumptions, key sensitive information and overall results relative to the risk appetite, strategic and operational plans and capital management framework of the insurer

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10
Q

Describe the ORSA key element: Internal control & Objective review

A

Insurer should conduct regular review for: accuracy, integrity, reasonableness

Areas to review are:
- Consistency of ORSA results with an insurer’s risk limits & appetite
- Appropriateness of documentation that supports ORSA & contents of ORSA report.
- Effectiveness of information systems that support the ORSA.

Objective reviewer can be: internal or external auditor OR skilled professional not involved in the ORSA process (in general shouldn’t be part of ORSA process)

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11
Q

Is ORSA process the same for all federal insurers?

A

No, the ORSA is an internal assessment process, tailored to an insurer’s own risk profile and appetite, and reflective of the nature, scale and complexity of the insurer

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12
Q

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

A

YES:
- Insurer should assess its risk using an ORSA that is tailored to the company’s risk profile & appetite to set their internal target.

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13
Q

Futher considerations for the key element: relating risk to capital (4)

A
  • NSC (Nature, Scale, Complexity) of risks
  • OCN (Own Capital Needs)
  • Setting ICT
  • Integration with other business processes
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14
Q

Relating risk to capital: OCN (Own Capital Needs) - sources of data to assess OCN

A
  • External professionals: regulators, consulting firms, professionals & other associations, academia, credit rating agencies, etc.
  • Risk studies (Empirical data, evidence and studies of the different varying manifestations of historical and potential new risks)
  • Industry: trends in development in the insurance, financial and other markets & their impacts
  • Benchmarking exercises with respect to risk measurement and risk mitigation tools and their results
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15
Q

Relating risk to capital: Integration with business processes - explain

A
  • Forward-looking & consistent with Business Plan
  • Consider capital required for normal operations, stressed operations, wind-up
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16
Q

OSFI’s ORSA review - what is the DEPTH and FREQUENCY of this review

A

NSC of insurer’s activities (Nature, Scale & Complexity)

17
Q

OSFI’s ORSA review - what is the PURPOSE of this review

A

Non-prescriptive - allows for dialog on OSFI’s assessment of inherent risk, CRR & ORSA approaches or risks not fully captured?

18
Q

Identify scenarios that ORSA would consider for assessment of capital adequacy

A
  • Continue normally
  • Continue under stress
  • Wind-up
19
Q

What is the relative importance of (quantitative,qualitative) aspects of ORSA

A

Both aspects are equally important

20
Q

Regarding ORSA key element #1 “risk identification & assessment”, identify examples of risks to consider:

A
  • Emerging/evolving risks: measurement & management
  • Risk transfer/mitigation activities
  • Cross border activities: (country, currency) risk
21
Q

Regarding ORSA key element #2 “relating risk to capital”, identify possible approaches to calculating ICT (Internal Capital Target) (3)

A

COMPLEX INTERNAL MODEL: for complex risks
SIMPLE MODEL: with conservative assumptions
QUALITATIVE: includes expert judgment for difficult-to-quantify risks

22
Q

Describe similarities between FCT and ORSA (4)

A
  • Both are concerned with risk identifical and control of material risks
  • Both are forward looking to mitigate risks/threats to the company
  • Both are submitted to BoD (Board of Directors) & Regulators
  • Both involve scenario/stress-testing
23
Q

Describe differences between FCT and ORSA (3)

A

Guidelines:
- FCT: uses CIA SOPs (Statement of Principles)
- ORSA: uses OSFI guidelines

Methods:
- FCT: quantitative analysis only
- ORSA: quantitative and qualitative analysis

Report:
- FCT: AA (Appointed Actuary) is in charge of reporting
- ORSA: management is responsible for reporting

24
Q

Identify advantages of ORSA over MCT (6)

A
  1. ORSA allows for the setting of an internal target to reflect an insurer’s own risk appetite
  2. ORSA allows for a better qualitative assessment of risk, whereas MCT is only quantitative
  3. ORSA is tailored to a company’s risk profile & operations, whereas on the other hand MCT is a formulaic approach that isn’t specific to the company.
  4. ORSA considers more risks than MCT and includes all risks material and relevant to the company
  5. ORSA is more of a forward-looking measure
  6. ORSA is used for mitigation/prevention exercise
25
Q

ORSA report should allow Senior Management to (2):

A

Evaluate the level and trend of material risks and their potential effect on capital

Evaluate the adequacy of capital using stresses and scenarios

Exam 6C - Fall 2023 (56 decks)

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