Thursday, 7 February 2013

Towers Watson on US ORSA, Economic Capital and modelling trends

Towers have released a few decent bits of material of use to risk practitioners over the last couple of weeks which are worthy of comment. One on Economic Capital for Life Insurers is effectively a sales aid for their RiskAgility modelling software, but actually captures the drivers behind the UK's efforts to improve their ICA models to meet Solvency II requirements.

In particular the references to how firms ought to be making their model output 'useful' where they currently fall short (capital by business/risk/product, daily runs without running ALM models and ability to produce "what if" analysis) should be featuring highly on the agendas of both embedded use practitioners and AMSBs during 2013. Of course the sad part for any users of the software comes with the statement that RiskAgility is built "...specifically to deliver monte carlo simulation of 1 year VaR economic capital" - love to hear how the lack of multi-year is being dealt with in firm's ORSAs!

A second publication on ORSA preparedness in North America is also worth a read, even if only for us EU-based practitioners to have an opportunity to live vicariously through a country which will actually get it implemented! It is a relatively small quantum of respondents (mostly CFOs), and around half think they will be exempt on size grounds, but the perceptions which emerge are still valid, and one should be prepared to encounter this either side of the Atlantic;

  • 21% see it as a compliance exercise, while 60% think it will improve ERM and capital/strategic planning
  • Only 22% see their prevailing ERM frameworks tightly liked to strategic and capital planning
  • Only 40% are ready to implement an ORSA in the next 6-12 months
  • Concerns remain around resource requirements for educating "key personnel" and directors/C-suite - 45% and 66% respectively felt they have work to do in this area without necessarily having enough staff to do so.
  • 13% of respondents didn't see their risk management departments contributing to the ORSA process (I'll get my coat then...)
  • 3 year projection of capital requirements is the most common planning period envisaged
The same North American slant is then given to a financial modelling survey, which gives us another chance to peek over the fence. They found the following;
  • Reasonable amount of dissatisfaction around run-times
  • Around half planning to change their model governance processes in the near future
Looks like the NAIC/EIOPA covergence work should be a walk in the park then, at least on these topic...

No comments:

Post a Comment