OSFI.ORSA

Question 1

What does ORSA stand for?

Answer 1

Own Risk & Solvency Assessment

Question 2

What is the general goal of ORSA?

Answer 2

Enhance insurers’ understanding of the relationship between risk profile and capital needs

Question 3

Does OSFI approve an insurer’s ORSA?

Answer 3

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

Question 4

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

Answer 4

ERM and ORSA should be WELL-INTEGRATED so that the analysis and its results are consistent between them.

Question 5

Identify the ORSA's 5 key elements.

Answer 5

1. RISK identification & assessment
2. RELATE risk to capital
3. Oversight
4. MONITORING & REPORTING
5. INTERNAL controls & OBJECTIVE review

Question 6

Briefly describe the ORSA key element 'risk identification & assessment'.

Answer 6

Identify all material risks, including emerging, foreseeable, and non-quantifiable risks

Question 7

Briefly describe the ORSA key element 'relating risk to capital'.

Answer 7

Internal Targets should be set to reflect the insurer’s risk profiles, regarding its scope and nature of operations.

Question 8

Briefly describe the ORSA key element ' oversight'.

Answer 8

• BoD to review and discuss OSRA, should understand the decisions and plans undertaken by Sr Management
• Sr Management to have a good understanding of the nature of risks , risk mitigants, capital adequacy

Question 9

Briefly describe the ORSA key element 'Monitoring & Reporting'.

Answer 9

Annual reports ( or more often if risk profiles changs) to Board of Directors & Sr Management on risk profile & capital assessment.

Question 10

Briefly describe the ORSA key element 'Internal control & Objective review'.

Answer 10

• Controls: Ensure accuracy, integrity, reasonableness
• Independent Review: Conducted by auditors or external experts not involved in ORSA execution.

Question 11

Is the ORSA process the same for all federal insurers?

Answer 11

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

Question 12

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

Answer 12

YES:
An important part of ORSA is to set ICT since ICT considers insurer-specific risks

Question 13

Is cyber risk accounted for in the MCT calculation? Briefly explain whether it should be considered in the company’s internal capital target.

Answer 13

MCT
- not specifically part of MCT
ORSA
- should be considered in setting ICT (Internal Capital Target)
- product is sold through a mobile app

Question 14

Is interest rate risk accounted for in the MCT calculation? Briefly explain whether it should be considered in the company’s internal capital target.

Answer 14

MCT
- part of market risk within MCT
ORSA
- should be considered in setting ICT (Internal Capital Target)
- government bonds are subject to fluctuations in interest rate

Question 15

Is geographical diversification accounted for in the MCT calculation? Briefly explain whether it should be considered in the company’s internal capital target.

Answer 15

MCT
- not part of MCT (aside from earthquake + not part of diversification credit)
ORSA
- should be considered in setting ICT (Internal Capital Target)
- company operates in several provinces

Question 16

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

Answer 16

Quantitative & qualitative aspects are equally important

Question 17

Identify 3 possible approaches to calculating ICT (Internal Capital Target) .

Answer 17

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

Question 18

Identify 3 similarities between FCT & ORSA.

Answer 18

• both are concerned with risk identification & control
• both are concerned with capital available versus capital required
• both are submitted to BoD & regulators

Question 19

Identify 3 differences between FCT & ORSA.

Answer 19

1. GUIDELINES:
   FCT: uses CIA SOPs (Statement of Principles)
   ORSA: uses OSFI guidelines
2. METHODS:
   FCT: quantitative only
   ORSA: qualitative & quantitative
3. REPORT:
   FCT: by AA (Appointed Actuary)
   ORSA: management responsibility

Question 20

Identify 4 advantages of ORSA over MCT.

Answer 20

ORSA:
|1] includes ALL material risks
|2] uses stress-testing to set ICT(Internal Capital Target)
|3] qualitative (as well as quantitative)
|4] admits assessment of internal controls
MCT: doesn’t do these things