Thursday, 12 July 2012

EIOPA's response on the ORSA consultation - get on with it!

In a week so full of heavy reading (EIOPA's response to the Reporting Package consultation and the FSA's second tome on creating their SOLPRU handbook), I was hoping to get to something a bit lighter towards the end of the week (heard great things about 50 Shades of Grey on the grapevine...).

Then appears EIOPA's response to the ORSA consultation paper feedback, which is affixed to the document in a whopping 200 page annex. While I have blogged on the consultation paper itself back in November, the real meat and spuds of the response is condensed into the front 15 pages, from which I would flag the (non-exhaustive) following lobbyists points, along with EIOPA's responses;
  • Lobbyists were still asking for more prescription/examples in areas of the guidelines, regardless of this being Level 3
  • Specific concerns around the "deviation from risk profile" guideline, which may force insurers to adopt internal models
  • Continued concerns around proportionality and materiality definitions
  • Still seeking "ORSA Report" examples
  • Concerns around projecting overall solvency needs over the planning period, so looking for simplifications in that area
  • Range of concerns around Group ORSAs (diversification, Colleges of Supervisors, Third Countries, ORSA scope)
EIOPA's highlights in response are;
  • Re: proportionality and materiality - stop whining and get on with it (p8)!
  • Re: "Record of the ORSA" - a specific document containing all records of ORSA-related activity is NOT required, where existing documentation/records contribute to the assessment as they stand (in such cases "a reference to the relevant data is sufficient") (p9)
  • To supplement this, they note "A record of an individual ORSA will in most cases contain more information than is contained either in the internal ORSA Report or the ORSA Supervisory Report" (p10)
  • No specific approach for captives (so another 'get on with it'!) (p10)
  • All risks are expected to be quantified, regardless of the difficulty (p10)
  • Lobbying on forward looking perspective has clearly paid off, as the requirement to quantify overall solvency needs for each year of the projection period has been dropped (p10)
  • Onus on companies to justify conclusions around the severity of deviations of risk profile (which may lead a Standard Formula firm to start modelling) - a result of sorts for the industry I guess (p11)
  • Confirms that ORSA and SCR calculations cannot be completely divorced, but would allow an ORSA to be performed using an older SCR calculation, providing the risk profile hasn't materially changed in the interim
No reason to think they would radically divert from their proposal (indeed, they didn't on the reporting package as well, so at least the industry is getting the certainty it craves, if not the actual legislation!)


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    1. Thanks, glad it was of some use, I'll try and keep it up! Regards, Al