Own Risk And Solvency Assessment (ORSA)

Question 1

Define what is an ORSA

Answer 1

A regulatory requirement for insurance companies to assess their own risk profile and solvency needs based on their specific business model, risks, and capital requirements. ORSA is a key part of Enterprise Risk Management (ERM) and is designed to ensure that insurers have a robust process for identifying, measuring, managing, and mitigating risks.

Question 2

What are the 5 key elements an ORSA should contain?

Answer 2

1. Comprehensive identification and assessment of risks
2. Relating risk to Capital
3. Oversight
4. Monitoring and reporting
5. Internal controls and Objective Review

Question 3

Describe the “Comprehensive identification and assessment of risk” part of the ORSA

Answer 3

Identify, define and assess the materiality of all known/relevant risks

Question 4

Describe the “Relating Rrisk to capital” part of the ORSA (describe it in 3 steps)

Answer 4

1. Determining own capital needs (for each risk)
2. Setting internal targets
3. Integration with Other Business Processes

Question 5

Describe the “Oversight” part of the ORSA

Answer 5

Senior management should review the appropriateness and sophistication of methods.

Question 6

Describe the “Monitoring and reporting” part of the ORSA

Answer 6

ORSA should be performed on a regular basis and senior management should receive regular and timely reports

Question 7

Describe the “Internal controls and Objective Review” part of the ORSA

Answer 7

Objective review may be conducted by an internal or external auditor. The auditor must not have been involved in the development of the ORSA.

Question 8

Reports sent to senior management in the “Monitoring and reporting” part of the ORSA should allow senior management to… (5)

Answer 8

1. Evaluate the level and trend of material risks and their potential effect on capital
2. Evaluate the sensitivity and reasonableness of assumptions
3. Determine if the insurer holds sufficient capital for targets and goals
4. Evaluate the adequacy of capital using stresses and scenarios
5. Assess future capital needs

Question 9

You are designated within your firm to be part of the internal control and objective review of the ORSA. What will you be reviewing within the ORSA to assess its adequacy?

Answer 9

1. Comprehensiveness and appropriateness of an insurer’s assessment process given the specific characteristics of that insurer.
2. Governance mechanisms
3. Process for identification of risks, large exposures, risk concentrations, dependencies, interactions, etc.
4. Appropriateness of methodologies, distributions and measures
5. Reasonableness and validity of ORSA results
6. Reasonableness of individual risks
7. Consistency between the ORSA and the insurer’s risk target/appetite
8. Appropriate documentation
9. Effectiveness of information systems (communication)
10. Linkage of ORSA in processes (is it used? Or just done?)

Question 10

What is the role of senior management in ORSA?

Answer 10

To oversee the ORSA process, ensuring it effectively assesses the insurer’s risk and solvency.

Question 11

How does ORSA relate to enterprise risk management (ERM)?

Answer 11

ORSA is an integral part of ERM, enhancing understanding of risk interrelationships and capital needs.​

Question 12

How often should an insurer conduct ORSA?

Answer 12

Regularly, with frequency determined by the insurer’s specific risk profile and business context.

Question 13

What should insurers do if their ORSA identifies capital deficiencies?

Answer 13

Develop and implement plans to address the deficiencies, ensuring ongoing solvency and compliance.