File - Malta Actuarial Society

Role of actuarial function
supporting the FLAOR
leading to the ORSA
Ian Morris
June 2014
• ORSA requirements
• Insurance Rule 31
• The Forward Looking Assessment of
Own Risks
Introduction to BWCI
Established in 1979
Independent Partnership
100 staff (in Guernsey and Jersey)
15 qualified actuaries
Specialist insurance team
Clients in a range of jurisdictions
• Guernsey, Jersey, Malta, Gibraltar, UK,
Mauritius etc
Own Risk and Solvency Assessment
• Article 45 of Solvency II directive
• Part of risk management system
• Not a capital requirement
Key Aims
• Assess overall solvency needs
• Specific risk profile
• Approved risk tolerance limits
• Business strategy
• Continuous compliance with solvency
• How different from standard risk profile?
Solvency Assessment
• Processes in place proportional to
nature, scale and complexity of entity
• Properly identify and assess short and
long term risks
• Demonstrate methods used
• Integral part of business strategy
• Used for strategic decisions
• Updated regularly and for significant
change in risk profile
• Results reported to regulator
Role of Actuarial Function in ORSA
• Contribute to effectiveness of risk
• Work highly dependent on nature and
scale of entity
• …but this is just the minimum
How can risk modelling be effective?
• Integrate all aspects of risk assessment
• Understand how the business sets risk
• Model should reflect approach to
• Not just doing projections
ORSA for large entity
• Likely to be based on detailed model
• Possibly an internal model
• Would require extensive work and
Actuarial challenges
• Technical challenge to model a large
(and potentially complex business)
• Not easy to ensure model is robust
• How to communicate results to Board in
a way that ORSA is integral to business
• Need to convince a regulator that model
is appropriate
ORSA for a small entity
• How much work is needed?
• Will resources be available?
• What level of proportionality is
Actuarial challenges
• Undertake enough work to be satisfied
that the risk modelling is valid
• Simplifications likely to be needed but
whose judgement?
• How will regulators judge
Insurance Rule 31
• Implementation of latest EIOPA
Guidelines in Malta
Submission of Information
Pre-application of Internal Models
• Effective 1 January 2014
• EIOPA requires entities covering 80% of
market share to be included
• In practice most entities likely to need to
Forward Looking Assessment
of Own Risks
• Proportional
• Own risk management
• Nature, scale and complexity
Role of Board
• Should steer process
• Challenge results
• Documentation needed includes
Policy for assessment
Record of each assessment
Internal report
Supervisory report
• Description of processes and procedures
• Consideration of risk profile, risk tolerance
limits and solvency needs
Information on
• How and how often stress tests, sensitivity etc
• Data quality
• Frequency (with rationale)
• Timing (and circumstances that would change this)
• Appropriate evidence and documentation
• Internal report (to all relevant staff)
• Supervisory report to include
• Qualitative and quantitative results
• Methods and assumptions
• Comparison of solvency needs, regulatory
capital and own funds
Specific guidance
• Use standard basis or justify alternatives
• Express quantitatively and qualitatively
• Adequate range of stress and sensitivity tests
Forward looking (medium or long term)
Regulatory capital
• Comply on continuous basis
• Potential changes in risk
• Impact of asset changes
Technical Provisions
• Seek advice from actuarial function
• Continuous compliance with requirements on
calculation of technical provisions
• Identify risks from uncertainties relating to this
• Assess whether risk profile deviates from
standard model
• Take into account results and insights
• Capital management
• Business planning
• Product development and design
Role of actuarial function
• If limited to minimum level in the
guidance will this be enough to prepare
for ORSA?
• What will regulators expect?
Wider view needed (in my opinion)
• Look at elements required
• Consider actuarial aspects
• Direct issues impacting on technical
• Other issues which have potential impact for
risk modelling
Actuary should consider
• Approach to risk management
• Understood
• Reasonable
• Proportional
• Nature
• Scale
• Complexity
• Is this adequate?
• Would actuarial view help?
• What reports should actuarial function
produce (or comment on)?
• Should be able to add value in many
Risk profile
Risk tolerance
Stress tests
• Actuarial function should be able to
bring rigor and technical expertise to
• Value to board
• Value to regulator
Benefits of wider view
• Actuarial function should have deeper
understanding of risk and modelling
• Sounder basis for advice
• More comfort to regulator
Problems with wider view approach
• Will adequate resources be available to
allow actuarial function this depth of
• Do we have all the skills needed?
• Communication challenge to
• Establish resources
• Provide response that shows value from