IPEC earmarks second trial run for Own Risk and Solvency Assessment (ORSA

IPEC earmarks second trial run for Own Risk and Solvency Assessment (ORSA

Staff Writer

INSURANCE and Pensions Commission has earmarked a second trial run for Own Risk and Solvency Assessment (ORSA) with submissions from industry due by 30 October 2022 while the final ORSA guidance from the Commission is aimed for 31st of December 2022.

Last year the regulator requested insurers to submit their mock   ORSA reports and this week it held a workshop to present the findings based on the industry submissions.

An ORSA is an internal process undertaken by an insurer or insurance group to assess the adequacy of its risk management and current and prospective solvency positions under normal and severe stress scenarios.

Reviewing risk capital and projected solvency Ipec observed that companies based their assessments on the standard formula used to calculate the Solvency Capital Requirement rather than on their own risk profile.

Ipec said some entities did not include an assessment of their overall solvency requirements within the ORSA report.

“Insurance undertakings did not include a careful assessment of the differences between their risk profile and standard formula capital requirements IPEC is therefore of the opinion that the requirement for the assessment to consider the undertaking’s own risk profile was not fulfilled” Ipec said.

The regulator added that insurance undertakings needed to expand the scope of their assessment and expected them to demonstrate to the commission that they know what the important differences between the standard formula and their risk profile are.

Key findings of the ORSA noted significant variations between insurers – not a “one size fits all”

“In view of the deficiencies observed in the first dry run ORSA submission, IPEC questions: i. whether the ORSA is sufficiently integrated into all undertakings’ business strategies, processes and plans; and

ii\. Whether all undertakings have sufficient knowledge of their risks and limits to risk taking.✓

ORSA process requires both qualitative and quantitative impact on solvency, for it to be effective✓

Several of the shortcomings observed by IPEC may be indicative that many boards of directors are not sufficiently involved in the ORSA process.” Ipec said.

IPEC recommended that insurance companies develop ORSA governance
documents, including the ORSA policy and these be submitted for the next parallel run of ORSA.