fr berry presentation (final)

Actuarial Society 2016 Convention 23 – 24 November 2016

ORSA Business Unusual: Exploring the value of a well defined ORSA processFrancois Berry and Susan

Hunt


GlossaryFrancois dozing off

Francois psyched

Francois trying to explain (CPD)

Francois slightly perplexed

CFO of an insurer

Regulatory Consultant Sue

2

1 x 1 6 / 3 3 - 0

2 x 2 4 + 1

2 x 3


Crowd Participation (Quick Poll)

• Q1: Who has been part of the ORSA process in an Insurance

Company?

• Q2: Who came out of that process and thought:

“Wow – this has been useful!” ?

Even though the US elections have shown that polls are useless

3


Agenda1. Business As Usual

2. Why BAU No Longer Exists

3. ORSA as a Saving Grace

4. What Are We Doing?

5. What We Should Be Doing

6. How to Improve Risk Reporting

7. Q&A

4


Business as Usual

5


Business As Usual (BAU) BAU (official Wikipedia definition) is the “Unchanging state of

affairs despite some difficulties.”

A situation that has returned to its usual state after an

unpleasant or surprising event (Quick reversion to normality)

By my own deductive reasoning:

Business unusual – is then a changing state of affairs because

of some difficulties – and not changing back to the usual state

6


Why BAU no longer exists…

7


Interconnectedness

8


When Politics and Markets Collide

9


Global Regulation

Title

RDR

Basel III

TCF

Solvency II

Conduct Risk

Reviews

10


ORSA as the saving grace… (The light at the end of the regulatory tunnel)

11


ORSA is a Control Cycle

Strategy

The Unknown

Optimal Capital/ERM

Your Risk Profile

Forward-looking

Actuarial Control Cycle

Be a professional

External

Environme

nt

12


What are we doing…. (The research referred to in the abstract…)

13


What most companies are doing…

Budgeting & Planning

Risk and Valuation Reports

ORSA Report

Compliance reports

Monthly Operational

Reports

Strategy Report

WTF?!

Solvency Report

Reserving Report

Monthly, Quarterly

and Annual Financial Reports

14


What we should be doing…

15


What should be happening

Monthly, Quarterly

and Annual Financial Reports

Budgeting & Planning

Risk and Valuation Reports

Compliance reports

Monthly Operational

Reports

Strategy Report

Solvency Report

Reserving Report

ORSA PROCESS ORSA Report

16


TITLE

Forward Looking

Strategy & Environment

Financial Results and Solvency

Policies, Risk Framework,Vision & Mission

Subtext…

Subtext…

Subtext…

Subtext…

Subtext…

The Report

Static ||Dynamic

Static || Static

Dynamic

17


Which now transforms the Board from BORED to engaged…

Update to the dynamic sections of your ORSA report

Past Future

18


How to improve risk reporting…

19


Improving Risk Reporting

• Well defined taxonomy

• Categories of risk

• Risk assessment

• Risk appetite and tolerance

• Accountability resides with the board

• Board and management should align risk appetite

• Structure should enable timely decision-making

• Can models be trusted?

• Are proxy models possible?

• Document models adequately

• Appreciate difference between SRM & ERM

• SRM focuses on adding business value

Capital Adequacy

AssessmentStrategy vs

RiskProper

GovernanceCommon

Risk Language

26


• Long and static reports

• Lack of forward looking analysis

• Focus on meeting compliance

• No one company was a leader across all the assessment criteria.

• Reports more concise • Improvement in:

looking forward, stress and scenario testing, the capital model

• ORSA still not used as tool• Move from annual to quarterly

process• Companies struggle to align ORSA

with BAU activities

THEMESEARLY DEVELOPMENTSLATER

UK ORSA Reports

20


Thoughts on ORSA End State

Month 1 2 3 4 5 6 7 8 9 10 11 12Business planning / strategy

Risk and capital management

Risk strategy / appetite

Material risk assessment (‘Risk Identification’, ‘Stress and scenario testing’)

Forecasting (‘Risk projection’)

Economic Capital (‘Risk projection’)

Risk analysis

Capital allocation

Reporting

Boards and committees

Governance

Annual process¼

Monitor

¼ Monito

r

¼ Monito

r

¼ Monito

r

RMC RMC RMC Board RMC

Independent review and challenge

ORSA lite

ORSA lite

ORSA lite

Annual

ORSAQRT QRT QRT QRT

SFCR RSR

Update

21



Reporting and Monitoring

Board Involvement


Board Involvement

Documentation, good reports

22




Board Involvement


Board Involvement


23




Board Involvement


24



Board Involvement


Board Involvement


25


What I imagine…

27


“I have a dream…”

28


Conclusion• There is no such thing as business as usual (2016 can be used as evidence)

• All this regulation gave birth to something really useful – ORSA

• ORSA is quite ORSA…M! (He he)

29


Any Questions….

30

fr berry presentation (final)

Documents