Wednesday, 13 June 2012

ORSA guidance materials from CRO Forum and Lloyds - any help?

It is always nice to get a bit of friendly steer around ORSA when the powers that be stubbornly refuse to give us boxes to tick!

Released over the last week or so came two such documents, one from Lloyds of London and the other from the CRO Forum.

The Lloyds effort is of course tailored for their syndicates, but the areas they emphasise clearly have merit for any organisation which is embarking on the ORSA adventure, whether sponsored by Solvency II, IAIS ICPs, the NAIC, or indeed any other random acronym! In particular I liked;
  • Clearly set out an explanation to cover difference between regulatory and economic capital measures
  • That while the ORSA Report would be expected to set out the impact of shocks over the medium term, this does not imply that a multi-year model is required (anyone struggling to keep it stochastic after year 1 would be relieved to hear that!)
  • Small set of simple questions which one might like to ask their Board after they review the report in order to establish use
  • No specification on size!
The tables which make up the bulk of the document should be a useful reference point for anyone with an inferiority complex, as it highlights gaps which have been identified during their own QA work, as well as suggesting remediation. Appreciating ORSA is only required for IMAP from a use test evidence perspective (which they comment on in the Q&A in the appendix), any chance that these gaps contributed to the delay in their submission?

The CRO Forum paper on the other hand tries to cater for both the poachers and the gamekeepers by summarising observable best practices from regulatory-themed bodies (who I suppose will ultimately determine what's hot and what's not on the matter). From their doc, I noted the following;
  • Potential divergence between what lobbyists said about ORSA supervisory report when feeding back on Level 3 (i.e shouldn't differ from that presented to the AMSB, otherwise what would supervisors be considering it against) and the CRO Forum (who expect it to be a "summary of the results of the ORSA assessment") - doesn't feel like semantics the more I read it, so worth highlighting
  • Value of the ORSA Report for the AMSB is covered in a few paragraphs, which is always handy for board/senior management briefing
  • Strange bit around internal approval of ORSA reports, stating that the AMSB should review but not approve the ORSA Report, and that this is as per Level 3 - worth some attention if you have structured your ORSA governance around Board sign-offs of the associated reporting
  • An "illustrative purposes only" ORSA Report structure, which has no more or less merit than any others you may have seen, other than it is less granular than some which have emerged publicly from consultancies etc
  • Tips the hat towards leveraging RSR and ORSA administrative efforts in order to reduce duplication.
Whether or not you gain something from reading these materials, it's always nice to know someone is having a go!

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