OIC & ORSA. Thanita Anusonadisai Director of Capital and Solvency Standard Department Office of Insurance Commission, Thailand

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1 OIC & ORSA Thanita Anusonadisai Director of Capital and Solvency Standard Department Office of Insurance Commission, Thailand

2 Agenda Changes in insurance regulatory approach Update on OIC s regulations and initiatives ORSA in ERM for solvency purposes How OIC will use the ORSA?

3 Changes in insurance regulatory approach Retrospective Prospective Company Enterprise Company s activities New Regulatory Approach Financial Statement Governance Knowing the DNA Board involvement Rules Principles

4 Update on OIC s regulations and initiatives Stress Testing : Quantitative Impact Study and implementation plan RBC Phase 2 : more risks sensitive, alignment with international standard and a roadmap for further development of solvency regime in Thailand, including ORSA requirement New Internal control regulation : requirement on Audit Committee, Internal Audit Unit and Compliance Unit Minimum Standard on Risk Management : enhancement of ERM framework and corporate governance such as additional requirements for RM and actuarial function (ICP8)

5 Update on OIC s regulations and initiatives :Timelines onward Jan-June: QIS 1 Stress testing for life insurers July: Kick off RBC 2 project Oct: Data collection for risk charge calibration in RBC2 Nov: Workshop on RBC 2 technical paper Feb: Market Testing of RBC 2 + Review RBC related regulations and guidance notes Jun: QIS 2 Stress testing for life insurers and QIS 1 for nonlife insurers Nov: End of RBC 2 project, finalization of roadmap + Launch consultation paper 1) Finalize stress test requirements and develop related regulations 2) Tentatively implement stress test regulation to Life insurers 3) Revise and improve requirements of minimum standard on ERM regulation 1) Appointed Actuary required will be implemented to life insurers 2) Further developments on solvency regime: - Allowance of Internal model - Own Risk and Solvency Assessment (ORSA) - Group level capital adequacy assessment

6 UPDATE ON OIC S REGULATIONS AND INITIATIVES Summary of life stress framework for QIS1 6

7 SUMMARY OF LIFE STRESS TESTING FRAMEWORK Topics No. of tests Projection horizon Point of Reporting Responsible person Details 3 Prescribe + at least 1 Self select + at least 1 Stress to failure Base (3 yrs) Short (1 yr) Immediate (investment shock) + year 1 SM & BD When to conduct test Once a year 7

8 Summary of life stress testing framework Risk factors Macroeconomic (1) Investment Shocks Financial crisis (2) Pandemic (3) Equity price - 10% - 60% Same as (1) Interest rate Flattening Parallel Shift Down Same as (1) Credit downgrading - 2 notch - 3 notch Same as (1) FX Table A Table B Same as (1) Property - 2% - 30% Same as (1) Non Investment Shocks Mortality n.a. n.a / 1000 Hospitalisation n.a. n.a. +33 / 1000 Reinsurance Recoverable n.a. n.a. -20% 8

9 UPDATE ON OIC S REGULATIONS AND INITIATIVES : Key areas currently identified for consideration in RBC 2 project 9

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14 Update on OIC s regulations and initiatives : Internal control and RM regulations To enhance corporate governance Audit Committee Risk committee Internal control Internal audit unit Risk management Risk management function Compliance unit 14

15 ORSA in ERM for solvency purposes Standard formula Current solvency position RBC prescribed risk charges Stress test : macro, financial crisis and pandemic scenarios Internal model Incentive to move RM and capital management to a higher standard Stress test: self select and reverse stress scenarios ORSA Tool to link capital management, risk management, and business planning Unique for each company Set internal target capital level ERM framework Both Group and Legal entity level

16 How OIC will use the ORSA? ORSA key questions What is our strategy? What level of risk are we willing to assume in pursuit of this strategy? (risk appetite/ risk tolerance) What are the key risks that could hinder our ability to achieve our strategy? How much capital do we need to cover those key risks? (internal target capital level) What risks individually or collectively would subject us to losses that exceed our tolerance levels? (stress test) What risk scenarios would cause us to fail or stop operating as a going concern?

17 How OIC will use the ORSA? Details have to be worked out : policy, process, and report, timeline, who is required to file, and disclosure It will fit into OIC s risk based supervisory (composite risk rating process) Capital management planning by insurers ORSA will give more insight on how capital is managed Whether the management of capital effective or not Gain info group capital requirements via supervisory college

18 How OIC will use the ORSA? Alignment of interest between Rating agencies VS Regulators on ERM process Quality of ORSA starts with governance and ends with quality of company s data Board and SM External /internal audit RM function Strategy function Actuarial / finance

19 Conclusion The regulatory focus is now shifting to the ORSA and system of governance requirements Regulator s plans are evolving over time as a result of international standard requirement Let s get started to consider implementation plans within your company The ORSA is evergreen approach for being a successful company!!!!

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