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9th November 2011

EIOPA consults on Solvency II ORSA

In order to facilitate the preparatory work of insurance and reinsurance undertakings for Solvency II, the European Insurance and Occupational Pensions Authority (EIOPA) has launched a public consultation on Guidelines for the Own Risk and Solvency Assessment ORSA) for Solvency II.
EIOPA invites market participants and insurance and reinsurance stakeholders to participate in this consultation. EIOPA welcomes comments from all interested parties.
Details are spelled out in the Consultation Paper No. 008 that can be accessed via the EIOPA web site.
This consultation will end on 20th January.
Paul Clarke, global Solvency II leader at PwC, said
“Effective implementation of the ORSA remains one of the top priorities facing European insurers. Although some uncertainty still remains, EIOPA’s publication should provide insurers with the impetus they need to develop and finalise their ORSA process before Solvency II goes live.
A robust ORSA is the key to embedding the effective risk and capital management envisaged by Solvency II. The guidelines emphasise the role of the board, both in the ORSA process and in strategic decisions. Embedding the ORSA into how the business is run will both improve decision making and meet the regulatory requirements.
Although the guidelines avoid prescription, it is clear that the ORSA process is a considerable exercise requiring engagement from across the business and a large amount of supporting documentation and activity. The challenge for insurance groups will be to balance the detailed information required for each regulated insurance company, with the more holistic view that will be useful for a group board.
“Most insurers now have their ORSA policies in place, and are attempting dry runs to improve and iterate their process, but few have developed an effective format that allows them to articulate their risk and solvency position, both on a current and prospective basis, in a concise manner. This is the crucial next step towards making the process useable in practice and beneficial to the business.”
Paul Brenchley, insurance director at KPMG, commented “At the outset, supervisors established their intention to avoid prescriptive requirements on the ORSA to ensure they were not dictating the way that insurers operate, leaving firms to decide how best to address the requirements internally. This has led to uncertainty in terms of working through what is required, however EIOPA have stuck to this principle in this publication, recognising that there is no single ORSA approach. EIOPA state that the guidelines here focus on “what is to be achieved by the ORSA rather than on how it is to be performed” so are not directive in nature.
There is unlikely to be any further detailed guidance on the ORSA after the finalisation of this paper, so firms should treat this as the last opportunity to raise any key questions still remaining. Firms will need to work through the principles established in this paper and determine how they can be best met for their business.
One significant step in this paper has been to provide further detail on documentation and in particular separate the ORSA reporting requirements from the Pillar 3 reporting which should be a welcome move given the uncertainty raised on ORSA reporting historically.
The paper refers to an ORSA supervisory report which can leverage off the insurers own internal ORSA documentation on the results and conclusions regarding the ORSA. However, in line with the theme of the paper, few details are given on what is required in the ORSA supervisory report as supervisors have consciously resisted providing an example template in favour of insurers developing their own.”