Introduction to ORSA OIC Risk Management Seminar

30 June 2016

William Song

ORSA BACKGROUND Part 1

2 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Own Risk and Solvency Assessment

Aims to assess in a continuous and prospective way, the overall solvency needs of an insurance company.

A set of processes constituting a tool for decision-making.

3 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA - Background

“The concept of ORSA was developed through the introduction of Solvency II in Europe. The concept was then adopted by the International Association of Insurer Supervisors(IAIS) in their Insurance Core Principle (ICP) 16” – KPMG

“The supervisor establishes ERM requirements for solvency purposes that require insurers to address all relevant and material risk” – ICP 16

“The supervisor requires the insurer to perform its ORSA regularly to assess the adequacy of its risk management and current, and likely future, solvency position” – ICP 16.11

4 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Regional trend in ORSA/ICAAP in Asia-Pacific

Australia: ICAAP

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Malaysia: ICAAP

Singapore: ORSA

This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

RISKS IN NON-LIFE INSURANCE Part 2

6 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

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8 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Risk Library

Relevant Risks

9 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

10 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

SIMPLIFIED ORSA Part 3

11 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Various ERM Initiatives

12 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Board & Senior Management

Oversight

Stress Testing

Comprehensive Risk Assessment

Capital Management

Plan

Monitoring and

Reporting

Independent Review

Key Elements of ORSA

13 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

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ORSA Report Structure

Introduction

Overall Risk Assessment

•Underwriting Risk

•Reserving Risk

•Market Risk

•Credit Risk

•Liquidity Risk

•Operational Risk

Prospective Assessment

•Solvency Projection

•Stress Testing

•Conclusion

15 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA Report Structure – Risk Assessment

Underwriting Risk • The risk associated with volatilities in the timing, frequency

and severity of insurance events, relative to the expectations of the insurer at the time of underwriting, resulting in insufficient premium.

• Gap between actual loss ratios and projected loss ratios

16 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Underwriting Risk

17 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA Report Structure – Risk Assessment

Reserving Risk • The risk associated with fluctuations from unpaid insurance

loss estimates from prior accident periods, resulting in insufficient reserve.

18 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Reserving Risk

19 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA Report Structure – Risk Assessment

Market Risk • Risk arising from fluctuations in interest rates, foreign

exchange rates, share prices and other relevant market prices

20 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Market Risk

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0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

2009 2010 2011 2012 2013 2014 2015

Ma

rke

t R

isk

In

de

x

Financial Year

Market Risk Index Illustration

Market Risk Index

This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA Report Structure – Risk Assessment

Credit Risk • The risk of financial loss as a result of failure by another party

to meet its contractual obligations or failure to perform them in a timely fashion

22 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA Report Structure – Risk Assessment

Liquidity Risk • The risk that the insurance company may be unable to meet

short term financial demands (i.e. pay claims).

23 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

-

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Ca

sh R

eq

uir

ed

TH

B '

Bil

lio

ns

Financial Year

First liquidity graph

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Stress $ Borrowed

* Interest Rate * Time Period = Liquidity Index

This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Liquidity Risk Index Illustration

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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2009 2010 2011 2012 2013 2014 2015

Liq

uid

ity

Ris

k I

nd

ex

Financial Year

Liquidity Risk Index Illustration

This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA Report Structure – Risk Assessment

Operational Risk • The risk arising from inadequate or failed internal control

processes, people, system and other factors

26 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

27 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Solvency Projection

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0%

50%

100%

150%

200%

250%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

So

lve

ncy

Ra

tio

Financial Year

Solvency of Company X 1st Trigger Point 2nd Trigger Point Regulatory Requirement

Stress

This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

OTHER ELEMENTS OF ORSA Part 4

29 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Board Oversight

30 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Risk appetite

31 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

ORSA process

32 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Continuity assessment

33 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Linkage to business

34 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

KEY CHALLENGES IN THAILAND NON-LIFE

INSURANCE INDUSTRY

Part 5

35 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Difficult to rationalise “value” from ERM/ORSA

over a short-term period

36 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Acceptance from the board

37 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Lack of local expertise

38 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Over-emphasis on actuarial support

39 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

Cultural difference

40 This presentation is intended solely for information purpose only. It does not constitute legal or other professional advice. Whilst every effort is taken to

avoid errors, MSIG/presenter cannot accept responsibility for the accuracy of any statement, extract or information contained within this presentation.

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