Supervisor Review Lets talk about ORSA...MIMA Conference, December 2nd 2011 1 Insurance - An...

MIMA Conference, December 2nd 2011 1

Insurance - An Industry in Evolution

Supervisor Review Lets talk about ... ORSA (Own Risk & Solvency Assessment)

December 2nd 2011 Claus Brinkmann

© 2011 Deloitte2

“Let's talk about all the good things. And the bad things that may be. Let’s talk about …“

2

• Preliminary Remarks

• What is „ORSA“?

• Implementing ORSA

• Vision• Methodology• Process• Documentation & Report Design

• ORSA and Use Test

• Summary

Appendix:ORSA across Europe - A Deloitte survey

Content

…ORSA

MIMA Conference, December 2nd 2011


© 2011 Deloitte

Preliminary Remarks

3 MIMA Conference, December 2nd 2011

© 2011 Deloitte

Insurance An Industry in Evolution

4

t = 0 t = 1 t = 2 t = 3

Premium

Losses

Expenses

CoCEconomic

value added

Measure of sucess

Main advantage

Main disadvantage

Economic Value Added

Fully captures the economics of

the business

Complexity

- - > 0

Premium

Losses

ExpensesTechnical

result

Measure of sucess

Main advantage

Main disadvantage

Technical result

Simple metric while taking the

quality of the business into account

Does not capture the true

economics the business

Premium

Volume growth

Measure of sucess

Main advantage

Main disadvantage

Volume growth

Simplicity

Does not consider quality of the

business

Bigger

Is

Better!

Source: J. Schneider

And this is by the way the

SII/EIOPAapproach!

Volume vs Value & Risk based



© 2011 Deloitte5

Anthony Hilton (Evening Standard 17 September 2010):

"The real point is that effective regulation should be a top-

down process, not bottom up. What insurance needs, …, is

for seriously experienced business people to look at the

firm's business plan and challenge whether it has the

competence to execute it well and the risk controls to alert it

in time if something goes wrong.

That has to be done at board level. If the regulators are

satisfied, there is no problem. If they are unconvinced, they

demand more capital or a change in the plan.

What we are getting instead is micro-management of the

worst sort ..., through its (Solvency II) models, trying to tell the

industry how to manage itself. ”


Is ORSA the right solution to bring together the nitty-gritty details of the Pillars?


© 2011 Deloitte6

• ORSA is a Board Topic

• ORSA is a communication exercise (internal & external)

• ORSA pulls together all the existing ERM components

• ORSA aligns risk appetite and business strategy

• ORSA is forward looking risk management

• ORSA is focusing management attention on sensitive risks

• ORSA might uncover natural hedges

• ORSA is focused on regular, current and relevant information

• ORSA brings better risk awareness and foresight

• ORSA enables more insightful decision making

• ORSA improves capital efficiency

• ORSA reduces cost of capital through better management of volatility

• ORSA gives a chance for internal models, without the formal approval process!


Yes – ORSA is the approach to force insurers to pull together all the bits & pieces they have worked on so far – it facilitates an integration of the Solvency II Pillars and links solvency capital and risk management!



© 2011 Deloitte7

ORSA – not limited to European Solvency DiscussionsOn the Top of the Insurance Agenda – worldwide!


© 2011 Deloitte

ORSA: Current Status … getting to the finish line

Source: State of discussion about ORSA, Sibylle Schulz; BaFin, Bonn 13.10.2011

Consultation09/2011 –01/2012

Pre-consultation

winter 2010/2011

Separate ORSA level 3

paper

As from April 2012: review of

comments

Remarks for standalone and group

ORSA

Level 3 ORSA: Guidelines & Recommendations



© 2011 Deloitte

What is ORSA?


© 2011 Deloitte

ORSA is NOT….

10

• ORSA is NOT a mechanic calculation

• ORSA is NOT all about capital (need for non Pillar 1 risks)

• ORSA is NOT the basis for regulatory capital requirements (SCR)

• ORSA is NEITHER an internal model NOR creates it a requirement

for an internal model via the back door

• ORSA is NOT complied with by just producing a report or by

filling templates

• ORSA is NOT written down in detailed guidelines

• ORSA is NOT a “one-off” exercise



© 2011 Deloitte

Internal Model Governance

Pillar 1

•SCR / MCRStandard Formula

SCR Partial / Full Internal Model

Internal Model Tests & Standards

Risk Governance (art. 41 -49)

Own Risk Solvency Assessment

(ORSA)

Use Test of an internal model

Disclosures

RegulatoryReporting

System of Governance of an internal model

Pillar 2 Pillar 3

ORSA is…… an essential part of the Risk Management System

11

Article 45 requires the undertaking to

perform a regular ORSA as part of the risk

management system. The main purpose of

the ORSA is to ensure that the undertaking

engages in the process of assessing all the

risks inherent in its business and determines

its corresponding capital needs. To achieve

this, an undertaking must have adequate,

robust processes for assessing,

monitoring and measuring its risks and

overall solvency needs, while ensuring that

the output from the assessment is

embedded into the decision making

processes of the undertaking. Conducting an

assessment of the overall solvency needs

properly involves input from across the

whole undertaking.

.

* Source: Section I: General considerations No. 4.1.

Consultation Paper On the Proposal for Guidelines onOwn Risk and

Solvency Assessment

EIOPA-CP-11/008; 7 November 2011

“Solvency II is not just about risk measurement and quantification,

rather it is about effective

governance and risk management”

CEIOPS, Lessons learned from the

crisis (Solvency II and beyond)

“The processes companies shall

have in place as part of the ORSA

are at least as important for the

undertaking as the final result”

(CEA response to CEIOPS’ ORSA)

… and, don’t forget that it is part of

the dialogue with the supervisor


© 2011 Deloitte

Source: BaFin: Solvency II-Konferenz, Wasserwerk, Bonn / 20. Juni 2007

Supervisory Processes in the European Directive (Pillar 2)

Business Organisation

Fit and Proper

checking of

Board/Key

Personnel/sup Board

Outsourcing

Actuarial Function

Governance

Risk Management

„OWN RISK AND SOLVENCY ASSESSMENT“ (ORSA)

Internal Audit

Supervisory Review Process (SRP)

Early Warning System

SRP Conclusions

Whole range of prudential measurese.g.:§ Pillar II add-on§ Change of Eligible Elements

(Amount/Quality)§ Full/partial Internal Model

Supervisory evaluation of on-goingcompliance with minimum standards and requirements

§solvency control levels§cooperation between

supervisory authorities§supervisory methods§supervisory tools§supervisory powers§fit and proper checking§peer reviews§extension of the scope

of the business§authorisation of a new

insurance undertaking§on-going supervision,

both on-site and off-site.§Limits on eligible assets

Harmonisation of Supervisory Practices

Audit

fully satisfactoryNot

fully satisfactoryPillar / SCR

(Solvency Capital

Requirement)

Dialoge

Dialoge

Capital

Assess and review of all processes for compliancewith laws, directives and administrative provisions

Evaluatetion of all risk and the ability of the undertaking to assess them

Access and review of the Governance System

ORSA is …… the key element of Solvency II and brings the three pillars together



© 2011 Deloitte

ORSA is...... explained by of the German Supervisor (BaFin)

The ORSA does not presuppose the existence of an internal model. If an internal model is available, it has to be included.

For regulatory purpose For purpose of insurer

Qualitative

Quantitative

Business plan (How does it affect the internal capital

requirements?)

Plan to ensure the regulatory

solvency capital

Explanation of differences in

capital requirements

Internal capital planning

SCR calculation

1

2

3

5

4

BaFin: Solvency II-Konferenz, Wasserwerk, Bonn | 20. Juni 2007

Within the strategic planning the

board of directors needs to

explain the targets focused on

and the implications on the total

risk situation

ŁŁŁŁ Risk; capital; result as the

basis of a risk (and value) based

management

On the way to the ORSA the risk

reporting “AS IS” needs to be

extended by some explanations

of the mid term planning

background and assumptions.

The link to the business and the

risk strategy should be

explained.


© 2011 Deloitte14

ORSA is...… to be seen in conjunction to different other articles of the Directive

Article 48Actuarial Function

Article 246Groups

Article 120Use Test

Article 213 Prudent Person

Principal

Article 36Reporting

Article 45 ORSA

&Level 3

Guidance



© 2011 Deloitte15

ORSA is...... complex

• Business performance

• Performance by risk type

• Type and quality of own funds

• Risk Profile

• Identify, measure, monitor, manage and report short and

long terms risks

• Horizon Scanning

• Business Strategy

• Business Plan(s)

• Performance Targets

• Risk Tolerance Limits/Risk

Appetite

• Business continuity planning

• Contingency planning

ORSA• Process

• Reporting

• Decision Making

Risk Management

• Modelling (including approved

internal model)

• Capital requirements

• Technical provisions

• Stress and scenario testing

• Projections

Actuarial FunctionBusiness Strategy & Planning

Acknowledge the Dependencies

MI & Data


© 2011 Deloitte16

ORSA is ... ... a communication challenge!

Board / Executive

• Setting overall business strategy and risk appetite

• Engaging with stress tests & scenario results

• Sign-off of ORSA deliverables

Actuarial Function / Finance

• Developing risk measurement tools

• Investigating risk-reward optimisation

• Stress & scenario analysis / financial projections

Strategy / Asset Management

• Business planning

• Asset allocation

• Input on strategic direction

External Organisations / Internal Audit

• Challenge, benchmarking and (independent) review

• Ensuring appropriate control framework

• Quality assurance

Risk Management Function

• Managing the ORSA Process

• Producing ORSA Report

• Developing risk reporting templates (with others)

• Managing scenario testing and (reverse) stress testing

A sufficient ORSA is not possible without working across the functions



© 2011 Deloitte

Implementing ORSA


© 2011 Deloitte

ORSAKey ORSA Challenges: Implementation Requirements

18

�Design and build ORSA architecture and process linked to business and risk strategy

�Define roles and responsibilities for ORSA process

�Design information and data flow requirement for generating ORSA report from all business departments

�Design and document process map for ORSA production (allow for dataflow, check/validation points and board input and sign-off)

�Develop process so that ORSA results are captured in SFCR and RSR

�Develop a methodology and procedure for explaining and demonstrating an understanding of the extent to which the firms risk profile deviates significantly from the assumptions underlying the SCR (standard formula or internal model).

ORSA Methodology &

Process

ORSA Reports

`ORSA

Vision & Policy

�Description of business model and the risk profile (long- and short-term)

�The methodology, assumptions, and justifications in the ORSA results

�Reconciliation of the ORSA with the SCR (internal model and standard formula)

�Description of data sources, systems and controls

�Description of how the ORSA is used in the business (risk management, strategic decisions, operations)

�Description of risk tolerance limits (Capacity, Appetite and Limits framework)

�Description of governance system and justification

�Approval and sign-off by the management or administrative body of the assumptions and results

�Development of ORSA vision to identify features and business requirements

�Define aims and objectives, purpose, identification of key stakeholders,

�Specify granularity requirements for embedding, frequency of reporting,

�Agree scope and requisite inputs/outputs,

�Linkage to other activities, key dependencies

~15%

~70%

~15%



© 2011 Deloitte

Key Input and Enablers ORSA Tasks ORSA Report

Risk Appetite and Strategy

Risk Profile

Risk Governance

Business objectives

Internal Model Framework

Targetoperating model

-Validate Process

-Data

-Assum

ptions

-UR

-MR

-CR

-OR

Economic Capital engine

Collate info to ORSA

Validate capital output

Oversight of the internal model

Risk function Input

Validation of Risk

Set Risk Appetite

Set Performance Target

Board Input

It represents the formalization of the results of the own risk solvency assessment performed by an undertaking and provides mainly a description of:

- ORSA Vision

- System of Governance and justification

- How ORSA is embedded in the decision making process (Risk Strategy, Capital allocation, risk tolerance and operating limits framework) and in the Operating Model

- Risk profile (long- and short-term), the assumptions used and justifications

- Methodology used and justification

- Internal evaluation of capital needs and Reconciliation of the ORSA with the SCR (internal model and standard formula)

- Availability of own funds and matching with criteria of eligibility for SCR

- Approval and sign-off process

Our recommended approachHow do we implement and embed the ORSA: The ORSA work-packages

Set up Governance

Define target Operating Model

Top Management

§ Define, Write and approve ORSA Vision & Policy

§ Define frequency and time horizon for ORSA, how to assess changes in risk profile and metrics to be used

§ Ensure ORSA covers all material risks, both the ones considered in the SCR and other non standard risks (e.g. Reputational , Liquidity)

§ Design and build ORSA framework embedded in the, Governance , risk strategy, capital allocation and in the Operating Model in in terms of

- Organisational Structure: Roles of Risk function , operating function, and Committee; Organisational Chart, ...

- Operational Structure: Value Chain :processes, procedure/methodology and tools for

- performing Own Risk Self Assessment - drafting the ORSA Report

- Reporting: information and data (Data Modelling) useful to fulfil the Reporting framework to:

- perform Own Risk Self Assessment. Some examples of reporting to support the decision making process are: Capital Allocation Reporting, Risk Profile Reporting, Risk limits Reporting, Risk Monitoring Reporting etc.

- draft the ORSA Report (Data Modelling) taking into account that the RTS (NOT publicly disclosed) and the SFCR (publicly disclosed) shall include information provided by the own risk solvency assessment

- IT system & Tool: Map of IT solutions and tool to run internal models or manage risk factors etc.

ORSA Process & Methodology


© 2011 Deloitte

ORSAPart of the Solvency II (fast close) processes

Specific reporting processes need to be defined, but because they are situated at the end of the

reporting chain they cannot be dissociated from upstream processes.

1. Data processes2. Calculation processes3. Valuation of assets and

other liabilities

5. Reporting processes

4. Consol. &aggregation processes

Life:

Contracts and

claims

Non life / Health:

Contracts and

claims

Asset Data

Accounting Data

Data sourcesData

CollectionCalculation

Conso. and aggreg.

Reporting

SFCR &

RSR Group

SFCR &

RSR Solo

Ris

k C

lass a

ggre

gato

r and c

onsolid

ation

Risk

Market

MVL & Tech

Provisions Life

MVL & Tech

Provisions Non

Counterparty

Default Risk

Operational

Risk

Economic

Scenario

Generation

Cash Flow

projection Life

Cash Flow

projection

Non-life /

Health

Cash Flow

projection

Assets

Ext

ract

Tra

nsfo

rm a

nd L

oad

Cohere

nce c

ontr

ol, v

alid

ation

and s

ign o

ff

Valid

ation a

nd s

ign o

ff

Monitor and Control

Results:

SII Balance

sheet, Capital

Requirements

Operational

Losses

Counterparty

information

Life

Liabilities

Model Point

Assets

Model Point

Data Preparation

Experience

analysis and

assumptions

setting

External Market

Data

Cohere

nce c

ontr

ol, v

alid

ation

and s

ign o

ff

Life Insurance

Risk

Non-life and

Health Risk

Asset

Pricing

Internal

Reports

Life and Health



© 2011 Deloitte

ORSA: Vision


© 2011 Deloitte

ORSA Vision

The ORSA Vision represents the tool to introduce the ORSA within the Company / Group,

therefore it aims at giving guidelines for its implementation, considering the overall objectives

the Company wants to achieve and its specific environment (at both Group and Company level)

This chapter includes the objectives the Company / Group is willing to achieve with the ORSA Report both at Group and

Entity level

This chapter

describes how the

Company / Group

wants to document and communicate the ORSA process

This chapter

includes a high level description of the overall ORSA process

This chapter aims

at defining the scope of the ORSA report and how to apply the proportionality principle to the

different entities

This chapter deals with the

risks assessment to be documented in the ORSA report, for both quantifiable and non quantifiable risks

ORSAVision



© 2011 Deloitte

ORSA Vision StructureScope and Proportionality

The ORSA will be structured to consider the application of the proportionality principle, in order to set up an

adequate process which will fit the nature, scale and complexity of the risks profile managed by each

single entity part of the Group

The Group could decide to apply

the proportionality principle in order

to make the performance of the

ORSA the most adequate for its

entities, in order to avoid an undue

workload.

Different criteria could be applied

for the determination of the different

levels of the ORSA, i.e.

• Inclusion in the Internal Model

• EEA / Non EEA entity

• Amount of premiums / reserves

• Amount of Economic Capital

Level 1 ORSA

Level 2 ORSA

Level 3 ORSA

EEA

Entities

Non

EEA

Entities

PROPORTIONALITY


© 2011 Deloitte

ORSA:Methodology



© 2011 Deloitte

Identify risks

• Identify business risks, describe and quantify them(intuitive riskapproach)

• Identify major risksfor the company

Compute risk profile and solvency margin

• Determine the ORSA capital (Economic capital)

• Check adequacy of standard formula/internalmodel

Enhance a prospective view on risks and solvency

• Link strategic vision and riskmanagement

• Prospective view of risks and solvency

• Capital adequacy and risk mitigation measures

Manage risk

profile

• Compliance withrisk appetite

• Monitoring significant changes in the risk profile

• Continuous monitoring of compliance with solvency requirements and ORSA capital

Monitor and manage risks

• Incorporate risk in daily management, particularly in terms of operational limits or warning thresholds

• Establish riskpolicies

ORSA

Risk appetite (Risk strategy and policies)

To

ols

• Exposures’ dashboard’: Riskmetrics, includedthose not included in the standard formula: strategy, reputation, concentration, …

Pro

cess

Ob

jecti

ves

Strategic plan

Use test : ALM, profitablity, underwritting, reinsurance, ….

• Monitoring indicators:proxy for ongoing evaluation of the solvency depending on the sensitivity of ORSA capital to these indicators, consistency of bottom-up and top-down vision,…

• Risk monitoring reporting: Operational limitsmonitoring for eachindicator, Strategicplan/projection assumptions follow-up, montoring of warning threshold and actions to beimplemented

• Projection assumptions: economic and technicalassumptions, stress tests and scenarios planning,…

• ORSA economiccapital calculation: confidence level, type of calculation, calibration of stress tests, consistency with the standard formula or internal model…

Reporting

The ORSA methodsElements to develop : focus on quantitative aspects


© 2011 Deloitte

The ORSA must include the assessment of the Overall Solvency Needs of the Company / Group on a

forward – looking basis. This means that the Solvency Position must be projected on a selected time

horizon (normally the one used in the strategic planning)

Year t1Year t0

Own Funds

Economic Capital

Solvency

Ratio

Own Funds

Economic Capital

Solvency

Ratio

Actual Risk

Profile

Year t2

Own Funds

Economic Capital

Solvency

Ratio

Year t3

Own Funds

Economic Capital

Solvency

Ratio

Projected Risk Profile

The dimension

considered in the

assessment could be also split into

• Analysis per risk

category

• Analysis per BU (for

Groups)

• Analysis per LoBs

The ORSA methodsProjection



© 2011 Deloitte

0 1 2 3 Year

Assets

Surplus

SCR

BE + risk

margin

Assets

Surplus

SCR

BE + risk

margin

Assets

Surplus

SCR

BE + risk

margin

Assets

Surplus

SCR

BE + risk

margin

Regulatory

economic balance

sheet

Ł Are the capital needs still

covered? Which recapitalisation strategy to consider?

Ł Is the undertaking’s risk profile still acceptable?

Calculationkernel

Calculationkernel

Calculationkernel

Calculationkernel

ORSA requires that the undertaking’s overall solvency needs are met at all times over the strategic plan’s time horizon.

Central scenario(s)

Stress test(s)Revenues







The ORSA methodsProjection


© 2011 Deloitte

The ORSA methods Stress testing and Scenario planning

• Regulators and market participants have come to realize the

limitations of stochastic models. Thinking through scenarios and

stress levels, on a partly judgmental basis, is considered key to

fully understand risks

Beyond stochastic

models

• Scope of stress testing in ORSA is larger than usually thought:

– Sensitivity measures: impact of a move in one particular risk

driver, the source of the shock not being identified;

– Scenario analysis: assess ability to absorb exceptional but

plausible events with simultaneous moves in a number of risk

drivers;

– Scenario analysis through time: essentially capital planning

simulation for a most-likely non stressed scenario.

• Is the undertaking able to absorb such an event?

• How is the risk and capital structure altered in the long run?

• Are the limits, targets or objectives of the risk appetite still met?

• What are the answers we can provide to identified solvency

issues?

Use results to draw useful conclusions

Some confusion on terminology



© 2011 Deloitte

Liquidity risk

• Liquidity Risk framework based on

‒ Liquidity risk assessment (at both

Group and Entity level)

‒ Liquidity contingency plans

• Liquidity Risk assessment based

on the excess liquidity, the

difference between

‒ Available liquidity resources

‒ Required liquidity

On the above dimensions stress tests

are performed, including

• Distressed financial markets (asset

price and liquidity)

• Confidence crisis (increased lapses,

decreased premiums, no new

business)

• Natural catastrophes (windstorm,

flood, etc.)

• Liquidity Risk managed also with

monitoring of the Group debt

position

Reputation risk

• Reputation risk management aims

to three main objectives

‒ Proactively manage reputation risk

‒ Define accountability for reputation risk

across the organisation

‒ Implement proactive reputation risk

management, which consists of

1. Identification of risks

Made through the monitoring of

traditional media and social media,

existing surveys and reports of key

stakeholder groups and identification

of issue or negative perceptions

2. Prioritization of risks

Based on a set of variables and a

formula which allow to obtain the

sensitivity of any issue identified

3. Mitigation of risks

Based on proactive management of

the issue identified

4. Crisis communication

Based on a set of procedures and a

communication handbook

Strategic risk

• Strategic Risk framework based on

three principles

‒ Screening of the strategic and

competitive environment

‒ Reviews of consistency and relevance

of strategy

‒ Dialog between entities and the Group

• Strategic Risk assessment based

on different processes, on which the

above principles are applied

‒ Competitor’s review

‒ Growth benchmark

‒ Portfolio review

‒ Strategic plan

‒ Emerging risk analysis

‒ Quick screen

‒ Ad hoc strategic studies

‒ Strategic Audit reviews

‒ Strategy conferences & Management

training

• Recommendations and issue arising

from the above assessment are

considered in the strategic planning

The ORSA methods Non Pillar I Risks: Example of assessment / management methodology


© 2011 Deloitte

ORSA:Process



© 2011 Deloitte

Risk

Tolerance &

Appetite

Business & Risk Strategy

Stress- &

Scenario

Testing Risk

Identification

Risk

Measurement

Monitoring

& Reporting

Risk Culture

ORSA ProcessORSA óóóó ERM: There is no real difference


© 2011 Deloitte

Plan ok. ?

OR

SA

Re

po

rt

No

1) Solvency margin requirements

ImplementationPlanning phase

Plan implementation

(KPI)

Risks monitoring (KRI)

Capital allocation and

funding

Solvency valuation

Strategic plan

Risk tolerance

needs

Mission statement

Risk appetite

Risk profile

Qualitative analysis

No go : strategic plan review

(Independent) review

Permanent respect of regulatory solvency requirement

Financial communication

Permanent management of the risk profile

and capital

Operational plan

(KPI)

Risks limits(KRI)

ORSA ProcessThe link with strategic plan

phase

The strategic plan process and ORSA are to be closely coordinated

Own risk assessment

Link to the Internal Model



© 2011 Deloitte

ORSA ProcessRoles and responsibilities

Risk Committee

Risk Management

Risk Management, Strategic planning

& other key functions

Risk ManagementRisk Committee

Internal Audit

Management Board and/or

Board of DirectorsProcess design &

implementation

Process running &

output production

Process validationResult validation

(Independent)

Review

ORSA sign-off and

use in decicision

making

ORSA policy

approval


© 2011 Deloitte

Integrating ORSA into business planning

‒ Advanced companies will have an ICA projection incorporated into their business planning cycle.

‒ This is often at the end of the process as a check that the plan can be supported with existing

capital.

ORSA ProcessComparing existing processes

July August September October November December January February

Standard planning cycle

Business unit plans

Consolidated group plans

Management oversight

Capital modelling

Board approval

Source: Groupe Consultatif



© 2011 Deloitte

ORSA means that capital modelling and management oversight should be integrated into the planning

cycle at a much earlier point of time.

ORSA ProcessComparing existing processes

July August September October November December January February

ORSA planning cycle

Business unit plans

Consolidated group plans

Management oversight

Capital modelling

Board approval

Group capital modelling

Source: Groupe Consultatif


© 2011 Deloitte

ORSA: Documentation & Report Design



© 2011 Deloitte

ORSA ReportDocumentation; Documentation; Documentation


© 2011 Deloitte

ORSA Report Content overview

In our experience, the ORSA report covers the following topics:

Executive Summary

Risk management system

Overview of ORSA methodology and process

ORSA process and methodology for quantified risks

ORSA process and methodology for other material risks

ORSA results

Actions to meet capital requirements over the period

Independent validation

Review and sign-off



© 2011 Deloitte

ORSA Report Flow of activities

Definition of the

structure of the Report

Identification and

definition of enablers

ORSA Report process

designORSA Policy

• Definition of the table of content of the

ORSA Report and

definition of a ORSA Report Mock Up

• Performance of

interviews with all

areas involved in the

ORSA Report

production in order to

identify all the information needed and all processes who manage them

• Identification of the

workflow of activity to fill out the ORSA Report and definition

of guidelines for its completion

• Definition of the

ORSA Policy as part

of the overall Risk

Management System

of the Group


© 2011 Deloitte

Strategies

Other guidelines

ORSA ReportImpact on the management of documentation

ORSA-Vision & Policy

ORSAInputs Report

The end of the ORSA-Process is the ORSA-Report.

• What is the beginning?

• What is the general framework?

• Which documents are required by ORSA?



© 2011 Deloitte

ORSA ReportRequires a stable basement

Mission

Investment Guidelines

Business

Strategy

Risk

Strategy

Corporate

Governance

Code of

Ethics

Rules of

Procedure

Compliance Plan

Data quality Guidelines

Docu. & Info Guidelines

Op-Risk Guidelines

Emergency Guidelines

Compliance Guidelines

ALMGuidelines

Rating Guidelines

Derivate/SPVGuidelines

Liquidity Guidelines

ORSA means, ensuring the existence and an

appropriate design of these documents and starting

measures, if gaps occur.

Vision

Remuner.Guidelines

Fit & Proper Guidelines

Audit Guidelines

Audit PlanInt. ControlGuidelines

Outsourcing Guidelines

Reserving Guidelines

Reinsurance Guidelines

Underwriting Guidelines

Risk Accumulation-Guidelines

Risk management Guidelines

Claim managementGuidelines

ORSA-Guidelines

ORSA-Report

ALM StrategyInvestment

StrategyReinsurance

StrategyCredit risk Strategy

Underwriting/ Reserv. Strategy

Quantitative long-term planning


© 2011 Deloitte

ORSA in Practice



© 2011 Deloitte

ORSA and the Use TestThe overlap

• Business Planning• Capital Management• Review of Risk Appetite Statements• Risk profile incl. all material risks• Risk measurement & assessment

processes• Management actions & decisions• Quantity & quality of own fund• ...

ORSA Use Test

Source: GIRO 2010


© 2011 Deloitte

Use Test for the internal model Several examples of the usage of the internal model

Governance systemRisk management

systemDecision process

Capital judgment and

assignment

• Link between the

internal model and the

technical provisions

• Link between the output

of the internal model

and the external

reporting

• Link between the

internal model and the

technical

implementation of the

actions of the

management

• Measurement of

material risks

• ALM

• External risk reporting

• Internal risk reporting

• Design of the

reinsurance program

• Development of the risk

strategies

• Efficient usage of capital

• Investment decisions

• Determination of the

targets for return on

capital and rewards

• Product development

and pricing

• Business planning and

strategy

• Policy for the

underwriting of

insurance policies

• Capital management

• ORSA

• Calculation of the SCR

• Assignment of economic

capital per entity,

business line risk of

business line

• Assignment of

solvability capital per

entity, business line, risk

of business line



© 2011 Deloitte

ORSA & Use test DeliverablesHigh level examples of ORSA dashboard output

1. Balance Sheets 2. Profit & Loss

5. Risk Profiling4. Earnings & Cash Flows

3. Risk Capital

6. Performance Measurement

• Summary solvency position

• Projections of technical

provisions, net assets, etc.

• Analysis of change

• Scenario analysis

• ...

• Future profit projections by

line of business on an

annual or monthly basis

• ...

• Risk capital by risk class

• Diversification benefits

• Reconciliation of internal

model SCR and economic

capital

• ...

• Best estimate, optimistic

and pessimistic scenarios

• Projected earnings

• “What if” scenarios

• ...

• Ongoing monitoring and

capture of risk data

• Analysis of risks not adequately captured in the

SCR

• ...

• Analysis against KPIs

• ...


© 2011 Deloitte

Summary



© 2011 Deloitte

Points to consider for an ORSA

A clear, logical and documented ORSA should cover & consider:

Ø What is the current state of your business (results, SCR, etc)?

Ø What are you doing about it (responsibility; control & mitigation, processes, Data)?

Ø Do you have the right people in place (fit & proper)?

Ø What are your business risks, your risk appetite, the limits?

Ø What is material (impact on current capital)?

Ø Do you have enough capital (to cover all risks today and tomorrow)?

Ø What is included? What is excluded? Why? (Group effects etc.)

Ø Why are you following this approach (evidence & documentation)

Ø What are your plans (continuous view on the business)?

Ø What might be the range of outcomes & costs (stress tests/scenarios)?

Ø How can/will you cope with such outcomes (capital sources)?

Ø When do I have to review my position (triggers)?

Ø How have things changed (from last review)?

© 2011 B&W Deloitte GmbH


© 2011 Deloitte

… Questions ...

… last chance to participate in the consultation

until January 20th 2012 ...

https://eiopa.europa.eu/consultations/consultation-papers/index.html



© 2011 Deloitte

B&W Deloitte GmbHRosenheimer Platz 481669 MünchenDeutschland

Tel: +49 (0)89 29036 8540Mob: +49 (0)172 2463 [email protected]/de

Claus BrinkmannPartner

Actuarial & Insurance Solution

Member of

Deloitte Touche Tohmatsu

Contact


© 2011 Deloitte

ORSA:Appendix



© 2011 Deloitte

ORSA across EuropeA benchmark about the ORSA Report

The panel of this benchmark comprises 13 companies across Europe and has been

collated on the basis of our internal knowledge rather than any direct contact with the

organisations in question

Main themes covered in our benchmark are

• Frequency

• Nature

• Content / Themes

• Timing of production

• Engagement in design

• Length


© 2011 Deloitte

Frequency 1/2How often the ORSA will be produced

The majority of the companies analysedplan to produce their formal ORSA annually. Less than 10% expect to produce a monthly ORSA Report

The majority of the companies analysed expects to also use regular Risk Management Indicators (or similar) to support the annual ORSA



© 2011 Deloitte

Frequency 2/2Use of other Risk Management Indicators reports

No

Yes

69% of the firms anticipated that more frequent reports will be used to communicate risk and solvency MI

22% of the panel specified that this will have a monthly frequency with 67% of this sub-sample not known or to be determined


© 2011 Deloitte

NatureUse of other Risk Management Indicators reports

77% of the sample intend to use a combination of both static and dynamic information within their ORSA reports. Among the remaining 23%, only one firm intends to focus on streamlining the ORSA by removing as much static information as possible.

Over two thirds of the sample plan to take advantage of "Group ORSA" report to write a single ORSA report for entities contained within the Group



© 2011 Deloitte

Contents / ThemesWhat is included in the ORSA Reports

KeyThemes

Over two thirds of firms have these as key themes to the

ORSA report

62% of the panel plan to feature

decision making in the ORSA Report

50% of respondents plan to include

information on Model Governance

38% of the firms plan to

include information on their

business strategy

less than a quarter

anticipate information

on organisational

change


© 2011 Deloitte

TimingWhen the ORSA will be performed

Aligned with

Planning Process

52%

Year End

15%

Unknown / To be

determined

33%

Around 51% of the panel will be aligning the production of the ORSA report with their annual planning

process as opposed to just 15% planning to perform this at Year End. One third of the sample is either

unknown or to be determined



© 2011 Deloitte

Engagement in design 1/2Who has been engaged

15% of the sample have engaged the Board in the

design of their ORSA, however 46% of the sample

have engaged their Board Risk Committee. In 92% of the sample the CRO has already been engaged in the

design of the ORSA to date.

Interestingly none of the sample have engaged their CEO in

the design of their ORSA to date. About three quarters have

actively engaged the risk function in the ORSA design. Less

than half have engaged finance and just over half have

engaged 1st line stakeholders


© 2011 Deloitte

Engagement in design 2/2How the Board engagement is expected to be evidenced

The position is mixed over how Board engagement in the ORSA is expected to be evidenced. 38% of

the sample plan to use meeting minutes, 38% signing the ORSA off based on a full review of the

report, 23% to sign off based on a "light" review of the ORSA. On the latter, only one anticipates this

would be based on information contained on the ORSA in other disclosures



© 2011 Deloitte

LengthHow long will be the ORSA Report

Only 1 firm expects the ORSA report to be less than 40 pages in length (11 - 20 pages). 62% of the

sample anticipate the ORSA report between 40 - 100 pages long (31%, 41 - 60 and 31% 60 - 100

pages). Only 1 firm respondent was expecting a report length to be over 100 pages


About Deloitte

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© 2011 B&W Deloitte GmbH

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