Introduction to ORSA. OIC Risk Management Seminar 30 June William Song

Transcription

1 Introduction to ORSA OIC Risk Management Seminar 30 June 2016 William Song

2 Part 1 ORSA BACKGROUND 2

3 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 decisionmaking. 3

4 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

5 Regional trend in ORSA/ICAAP in Asia-Pacific Malaysia: ICAAP Australia: ICAAP Singapore: ORSA 5

6 Part 2 RISKS IN NON-LIFE INSURANCE 6

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9 Relevant Risks Risk Library 9

10 10

11 Part 3 SIMPLIFIED ORSA 11

12 Various ERM Initiatives 12

13 Key Elements of ORSA Monitoring and Reporting Comprehensive Risk Assessment Capital Management Plan Stress Testing Board & Senior Management Oversight Independent Review 13

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15 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

16 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

17 Underwriting Risk 17

18 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

19 Reserving Risk 19

20 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

21 Market Risk Index Market Risk Market Risk Index Illustration 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Financial Year Market Risk Index 21

22 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

23 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

24 First liquidity graph 30 Cash Required THB 'Billions $ Borrowed Stress Financial Year * Interest Rate * Time Period = Liquidity Index 24

25 Liquidity Risk Index Liquidity Risk Index Illustration 1 Liquidity Risk Index Illustration Financial Year 25

26 ORSA Report Structure Risk Assessment Operational Risk The risk arising from inadequate or failed internal control processes, people, system and other factors 26

27 27

28 Solvency Ratio Solvency Projection 250% 200% 150% Stress 100% 50% 0% Financial Year Solvency of Company X 1st Trigger Point 2nd Trigger Point Regulatory Requirement 28

29 Part 4 OTHER ELEMENTS OF ORSA 29

30 Board Oversight 30

31 Risk appetite 31

32 ORSA process 32

33 Continuity assessment 33

34 Linkage to business 34

35 Part 5 KEY CHALLENGES IN THAILAND NON-LIFE INSURANCE INDUSTRY 35

36 Difficult to rationalise value from ERM/ORSA over a short-term period 36

37 Acceptance from the board 37

38 Lack of local expertise 38

39 Over-emphasis on actuarial support 39

40 Cultural difference 40

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