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22nd February 2012
Willis Re issues Solvency II ORSA guide
Willis Re has released a report discussing the function and contents of the Own Risk and Solvency Assessment (ORSA) under Solvency II. Sometimes described by its advocates as “the beating heart of Solvency II”, the ORSA is one of the most significant innovations introduced by the new European regulatory regime, but even after the latest guidelines issued by the European Insurance and Occupational Pensions Authority (EIOPA) in December, it apparently remains a challenge for many insurers of all sizes.
The Willis Re report, entitled ORSA Under Solvency II Report: “What Is It, and Why Is It Good For You?” shows that each ORSA requirement can be directly traced to the text of the Solvency II Directive. Foremost among the Directive principles is the insurer’s responsibility for managing its risk exposures and ensuring that its solvency requirements are continuously met. The report explains that the lack of detailed guidance many market participants find difficult is actually a consequence of the approach to insurance supervision that inspired European regulators.
Presenting the new report, David Simmons, managing director, Analytics and Head of International Enterprise Risk Management (ERM) for Willis Re, said “With the ORSA, the burden of responsibility for ensuring insurers’ solvency is shifted from regulators to the insurers themselves. Risks have become too complicated to be effectively controlled through a set of rules dictated by regulators. Under Solvency II, therefore, insurers will have to keep a clear focus on the regulation’s objectives and use them to guide their decisions.”
While the new supervisory approach may at first appear confusing, it also offers great opportunities, Simmons noted. “ERM has become key for an insurer’s profitability and credit ratings. An effective ORSA will allow the insurer to allocate scarce risk capital efficiently and provide a showcase for the insurer’s ERM capabilities. In the long run, the costs of the ORSA implementation are going to be more than offset by higher profits.”
