Own Risk and Solvency Assessment

Transcription

1 Own Risk and Solvency Assessment Acumen Conference 2015 Elaine Hultzer, Insurance Audit & Advisory Partner, Deloitte Sati MacLean, Senior P&C Actuarial Manager, Deloitte June 10 th, 2015

2 Agenda Introduction Practical responsibilities for ORSA Operationalizing ORSA Deriving value from ORSA ORSA s evolutionary journey The ORSA feedback loop ORSA, ERM and the day to day management of risk Operational risk assessment Practicalities of evidencing the organization's ORSA 1

3 Organisation wide ORSA roles, responsibilities and accountabilities Input required Business stakeholder Review, challenge and sign-off Board ERM framework Capital management framework Risk & solvency assessment ORSA approach and framework Approve, review and sign-off Review, endorse, drive and deliver, quantify, assess, monitor, support, business as as usual // use test CEO Risk & Capital Committee Finance Claims Business/Functional Area Risk Committees Corporate Strategy Underwriting Actuarial Marketing // distribution Other Risk Management Partners IT IT HR Independent assurance Internal Audit External review 2

4 Year one ORSA evolutionary state Deloitte analyzed 2014 survey responses into 6 themes, providing an overall indication of the P&C and Life insurance industries overall preparedness and ORSA states. Both P&C and Life insurance industries are somewhat basic to intermediate in their current ORSA states, indicating that advanced modelling techniques have yet to be adopted and that the ORSA is not yet fully embedded into business as usual. ORSA state Basic Intermediate Advanced ORSA maturity ORSA engagement Internal capital models Intended use of ORSA ORSA governance Objective review P&C insurance Life insurance 3

5 Insurance industry s views ORSA Preparedness 4

6 Operationalizing ORSA 5

7 Deriving value from ORSA Simply stated, ORSA provides a declaration of the company s assessment of its position in terms of profit, risk and capital, both now and in the future, under different scenarios and relative to the company s appetite for risk. ORSA (provided it is effective and clearly communicated): 1. Enhances the information basis for Board decisions; 2. Provides an understanding of the company s risk profile going forward (how the evolving risk profile relates to risk appetite under the various alternatives, including major risk drivers, and the capital resources available to support current and emerging risks); 3. Increases credibility with regulators or supervisors; and 4. Helps build/maintain risk awareness throughout the company Quoted from Deriving Value from ORSA, Board Perspective by The International Actuarial Association 6

8 The ORSA evolutionary journey Deloitte LLP and affiliated entities 7

9 The ORSA feedback loop Updates to: Risk governance Internal controls Business inputs Strategic and business plans Business Strategy ORSA Report and Supporting Documentation Capital Assessment ERM Practices and Processes ORSA Solvency assessment Capital allocation Solvency reporting Regular monitoring and reporting 8

10 ORSA, ERM and the day to day management of risk Business strategy High-level strategic approach Philosophy Risk principles How do we think about risk, value, and diversification? Strategy Risk strategy What risks do we wish to take in the medium term? Preferences Risk preferences What risks do we prefer to take given expected returns and diversification? Risk appetite and limits Capital management Performance management Group risk appetite Entity level Economic value creation Risk management framework Linked by business planning process Main fund/group Risk Adjusted Return on Capital Business-unit risk limits Business-units Other Risk Metrics/OR matrix Day to day risk management activities Business planning and capital allocation Product design, underwriting and pricing Risk management and mitigation Performance management and reward Solvency, capital and cash management Internal and external reporting Deloitte LLP and affiliated entities 9

11 Operational risk assessment Input: Internal loss data External loss data Models Expert opinion Output: Risk assessment Capital assessment Alternatives to capital 10

12 Next steps in evolving ORSA solvency assessment ORSA should not be viewed as a one-off exercise There should be a continual process of reviewing, updating and evolving the ORSA Robustness of current methodology and models should be reviewed and challenged Stress and scenario testing: in and out of model stress tests Back testing, profit attribution Involvement of the business and use of expert judgment How does the ORSA deal with non-quantifiable risks? 11

13 Practicalities of evidencing ORSA 12

14 Practicalities of evidencing ORSA OBJECTIVE REVIEW Board Senior Management Operations (First line of defence) Risk (Second line of defence) Internal Audit (Third line of defence) Deloitte LLP and affiliated entities 13

15 Objective review Objective review provides independent assurance over the current state of insurer s ORSA practices Performed by a skilled resource, either internal or external, that was not involved in the design and development of the ORSA practices or in the operating effectiveness of the ongoing ORSA practices Assists the Board of Directors,( reliant on management prepared information), with governance responsibilities by: assurances over management prepared risk and capital Board reporting and contents of the annual ORSA Report demonstrating the OSFI required review and challenge responsibilities of the appropriateness of the insurer s ORSA practices and the level of internal capital targets determined by the insurer. 14

16 Questions 15

17 Contact details Elaine Hultzer Sati MacLean 16

18 Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a U.K. private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.