The key role that the Own Risk and Solvency Assessment (ORSA) plays in the overall enterprise risk management of life (re)insurers has been highlighted very clearly in the past year as (re)insurers have grappled with the direct and indirect impacts of COVID-19 on their businesses.

Over the past five years, since the introduction of Solvency II, the focus areas and process around ORSAs have continued to evolve and we share with you some general insights on evolving themes and development areas observed, in relation to the ORSA process, covering:

As ORSAs have become more embedded in (re)insurers, developments have been observed in the form that the reporting is starting to take, with some (re)insurers considering much more focused reporting to Boards and their Board Risk Committees, sometimes through shorter reports, with static information now being included in appendices or ancillary documentation that forms part of the ORSA record. 

Some (re)insurers have adopted a process of spreading ORSA reporting across the calendar year, based on a structured timetable agreed at the start of each ORSA cycle. Many important elements are assessed at different points of the year, which has meant continuous ORSA agenda topics at Board/ Board Risk Committee level, with the main objective of the final ORSA report to bring the entire process together. Ensuring the timing of the ORSA processes facilitates effective use in decision making and in business and capital planning has been a critical area of focus for some (re)insurers.

Formally linking the ORSA processes to the business plan/ strategy of a (re)insurer is a critical area of attention for many (re)insurers, and also of regulatory scrutiny, with an expectation that a formalised risk assessment is carried out in parallel with agreeing the business plan/ strategy of the (re)insurer. 

The COVID-19 pandemic has presented both a challenge and an opportunity to (re)insurers to assess the resilience of the ORSA. Themes that have emerged including assessing the robustness of the continuous compliance process, focussing on regular assessment and reporting of relevant risk metrics, and reassessment of ORSA policies around when an ad-hoc ORSA should be produced, the specific risks to be considered in that event and assessing these more thematically if the situation arises.

COVID-19 has certainly focussed attention on how quickly risk can transition from being an emerging risk to an emerged risk. Some (re)insurers are exploring dynamic risk assessment which ensures a more holistic assessment of risk which considers velocity and inter-connectivity of risks as well as threat and likelihood. 

Climate risk has not been considered by most Irish based life (re)insurers in any great detail so far. UK life (re)insurers appear further ahead in this regard with the Prudential Regulation Authority (PRA) issuing publications since 2019 on enhancing approaches to managing financial risks from climate change and inclusion of climate risk in industry wide stress testing. 

While the Central Bank of Ireland has published Recovery Plan guidelines in April 2021, many (re)insurers have been trying to pre-empt what the expectations might be in relation to Recovery Plans, with an emphasis on categorisation of recovery plan options into Business as Usual (BAU) options, financing type options (including reinsurance) and franchise destructive type actions.

While there is continued attention on limit frameworks/ tolerances within which the business can manage, there is increasing focus on strategic, emerging and reputational risks, though these present challenges in the identification of best approaches to be deployed in monitoring these risks. An area for potential development for some (re)insurers is to show a clearer alignment of the risk appetite framework to the triggers for performing an ad-hoc ORSA.

Most (re)insurers have included a range of operational risk stresses within the ORSA stress and scenario testing. However, the approach to the assessment of an operational risk capital charge for the purposes of Own Solvency Needs Assessment tends to vary quite significantly between (re)insurers, including specific stress/ scenario testing carried out using internal models, hybrid models, qualitative assessments of operational risks with Key Reporting Indicators (KRIs) on systems, processes, products and people environment.

A further priority area for many (re)insurers has been on strengthening of the governance framework around the ORSA, which includes:

  • Formally demonstrating additional review and challenge of ORSA results within Actuarial and Risk teams;
  • Streamlining the stress and scenario projection process to minimise operational risk associated with out-of-model adjustments;
  • Documentation of the technical basis for the stress testing – assumptions, methods, calibration of stresses similar to a year-end assumptions basis document.

How KPMG can help

KPMG provide a range of supports and across the Insurance Risk and Actuarial Advisory sector. Examples of how our team of experts can assist include:

  • Assurance on a wide range of actuarial and risk aspects including Own Risk and Solvency Assessments (ORSA) peer review, risk and governance frameworks.
  • Capital management and optimisation in the current regulatory environment; and
  • Analysing your business, risks and data using modern technologies, including: Network analytics for risk management (Dynamic Risk Assessment), claims fraud and portfolio management, Content analytics, Data engineering and platforms, Machine Learning and Artificial Intelligence solutions;

Get in touch

For further information, contact our team below - we'd be delighted to hear from you.

Contact our team

More in Insurance