By staff reporter
The European Insurance and Occupational Pensions Authority (EIOPA) published today its final report on draft guidelines for Own Risk and Solvency Assessment (ORSA).
The report underlines the purposes of the ORSA and provides additional details on how the ORSA is to be interpreted. Undertakings are expected to have the necessary competence and expertise to find fit-for-purpose solutions for the practical implementation of the ORSA.
EIOPA points out that one key feature of the ORSA is proportionality. Insurers should develop their own ORSA processes that are tailored to fit into their organisational 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.
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 multi-year tendencies and developments.
Gabriel Bernardino, chairman of EIOPA, said: “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 top5down 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 strongly encourages the industry to use the current report in their early implementation of the ORSA.