Evolution of the ORSA

The ORSA process is essentially about Risk and Capital and their interaction in ensuring the business doesn’t fail. The capital model used in the ORSA (Standard Formula or Internal Model) must be designed to provide a confidence level against failure of at least 99.5%.

For a regulator, reducing the risk of failure is imperative and consistent implementation of the ORSA across the insurance industry can provide a certain level of regulatory comfort. For the Company, the ORSA can be about more than just avoiding failure. On the Risk Management Continuum, focus is initially on the risk of failure but as risk management matures within a company, the focus is equally on the risk of not succeeding (or under achieving).

With a positive approach to getting the most from the ORSA process, there are additional value-adds to be achieved: Mapping the business variables, their interdependencies and their relative importance in influencing business success provides real insight to where value is / can be created. Formal risk assessment of strategic plans against, not just internal competences and resources, but also emerging environmental issues can steer strategy development.

Understanding relative capital return ratios helps ensure optimum use of scarce resources. Targeting the optimisation of capital returns forces consideration of opportunities not currently in the plans The Board are responsible for directing the business. Discussion by the board on the role of the ORSA and where it should fit in the annual planning, monitoring and control of the business will be a worthwhile discussion.

Don’t let it become an annual financial modelling exercise only!

Seamus@GovernanceMatters.ie