EIOPA Releases Final ‘Own Risk and Solvency Assessment’ Report

July 13, 2012

The European Insurance and Occupational Pensions Authority (EIOPA) has published its Final Report on draft Guidelines for Own Risk and Solvency Assessment (ORSA), which “underlines the purposes of the ORSA,” and provides “additional details on how the guidelines are to be interpreted.”

EIOPA added that “undertakings are expected to have the necessary competence and expertise to find purpose solutions for the practical implementation of the ORSA.”

The bulletin highlighted the following key components concerning the ORSA:
• The report focuses on what is to be achieved by the ORSA rather than on how it is to be performed
• Proportionality is a key feature of the ORSA
• Insurers’ Boards should take an active part in the ORSA, including steering on how the assessment is to be performed and challenging its results
• Insurer’s assessment of the overall solvency needs should be “forward looking”

EIOPA stressed that “one key feature of the ORSA is proportionality. Insurers should develop their own ORSA processes that are tailored to fit into their organizational structure and risk management system with appropriate and adequate techniques to assess the company’s overall solvency needs.

“The undertaking’s administrative, management and supervisory body (AMSB) needs to play an active role in the ORSA, particularly by steering on how the assessment is to be performed and by challenging its results.”

In addition EIOPA explained that “undertakings should express the overall solvency needs in quantitative and qualitative terms and complement the quantification by a qualitative description of the risks. Insurers will be required to submit to the NSAs a forward looking assessment of their overall solvency needs indicating multi5year tendencies and developments.”

EIOPA Chairman Gabriel Bernardino commented: “With this report EIOPA highlights its expectations in relation to the implementation of the ORSA by insurance undertakings. The ORSA should allow insurers to have a complete and holistic risk understanding and should connect business strategy and capital planning.

“The ORSA is a top down process owned by the undertaking’s Board. In this sense it should be an essential tool to help boards in their core responsibility not to take on more risks than the capital base allows for. The financial system needs a cultural change and I believe that the ORSA will become a key element of such a change in the insurance sector.”

EIOPA’s bulletin concluded with an admonition that it “strongly encourages the industry to use the current report in their early implementation of the ORSA.

Source: European Insurance and Occupational Pensions Authority

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