Prudential Standard GOI 3.1 (Own Risk and Solvency Assessment for Insurers)

Question 1

4 Objectives of the ORSA

Answer 1

To assess:

• the resilience of an insurer’s solvency across a range of possible scenarios
• the overall solvency needs of the insurer taking into account the specific risk profile, approved risk appetite and business strategy of the insurer
• compliance, on a continuous basis, with financial soundness requirements
• the significance with which the risk profile of the insurer deviates from the assumptions underlying the financial soundness requirements

Question 2

An insurer’s ORSA POLICY must address at least (8)

Answer 2

• a description of the processes and procedures in place to conduct the ORSA
• consideration of the LINK between the:
• – risk profile
• – approved risk limits, and
• – the overall solvency needs
• information on:
• – stress tests / scenario analysis
• – data quality requirements
• – frequency and timing for the performance of the ORSA
• – the areas of the ORSA which are subject to independent review (and their review frequency)

Question 3

An ORSA must assess

Answer 3

current & likely future
financial soundness position of the insurer on an
— economic basis
— regulatory basis

Question 4

Risks which need to be addressed by the ORSA

Answer 4

All reasonably foreseeable and relevant material risks,
including:
--- underwriting
--- credit
--- market
--- operational
--- liquidity operations
--- group 
risks

Question 5

The ORSA must comprise the totality of the processes and procedures employed to… (5)

Answer 5

• identify
• measure
• monitor
• manage
• report
  the short- & long-term risks and potential risks of the insurer.

Question 6

The ORSA must include an assessment of: (5)

Answer 6

• potential future changes in the risk profile of the insurer in stressed situations
• the quantity and quality of own funds needed over the full business planning period of the insurer
• the quantity and quality of own fund available to the insurer
• the overall solvency needs in quantitative terms
• a qualitative description of the risks
• any deviations between the risk profile of the insurer and the assumptions underlying the solvency capital requirement calculation.

Question 7

The ORSA report must present

Answer 7

• detailed info on current and future projected capital levels relative to minimum regulatory capital requirements and target levels over the full business planning period of the insurer
• detailed information on the actual outcomes of applying the ORSA over the period, relative to the planned outcomes in the previous ORSA report
• a description of material changes to the ORSA since the previous ORSA report
• detail and outcomes of stress testing and scenario analysis used in undertaking the ORSA
• a breakdown of capital usage over the planning horizon, by material:
• – business activity
• – insurance group members
• – geographic spread of exposures
• – risk types
• an assessment of anticipated changes in the insurer’s risk profile or capital management processes over the planning horizon
• details of any review of the ORSA since the previous ORSA report, including any recommendations for change and how these recommendations have been, or are being addressed
• references to supporting documentation and analysis, where relevant.