• PINS Part 2.4 PINS Part 2.4 Own risk and solvency assessment

    Amended by QFCRA RM/2013-1 and Editorial changes (as from 1st January 2015).

    • PINS 2.4.1 PINS 2.4.1 What is ORSA?

      (1) Own risk and solvency assessment (ORSA) is a detailed forward-looking examination of:
      (a) the adequacy of an insurer's risk management policies, procedures and controls; and
      (b) the insurer's present and future solvency positions.
      (2) The objectives of ORSA are:
      (a) to assess:
      (i) whether the insurer's own view of its solvency position is adequate given its risk profile and risk tolerance; and
      (ii) whether its solvency position is likely to remain adequate in the foreseeable future;
      (b) to show how the insurer proposes to manage (through capital buffers and other risk-mitigation mechanisms) the material risks to which it is exposed; and
      (c) to identify potential business vulnerabilities.
      Note 1 Because ORSA is part of an insurer's risk management strategy, the insurer must have regard to the other factors included in that strategy, including risk profile, tolerance and exposures, when conducting ORSA. For the same reason, the requirements that apply to risk management strategy (such as approval in r 2.2.2) also apply to ORSA.

      Note 2 ORSA is both a management tool for the insurer's governing body and a supervisory tool to warn the Regulatory Authority of solvency issues.
      (3) In conducting ORSA, the insurer must have regard to:
      (a) its overall solvency needs, including its own view of the adequacy of its capital resources to meet the regulatory capital requirements;
      (b) the actions it has taken to manage the risks to which it is exposed;
      (c) the financial resources needed:
      (i) to manage its business prudently; and
      (ii) to meet the regulatory capital requirements;
      (d) the nature and quality of the capital resources needed, having regard to their loss-absorbing capacity and liquidity;
      (e) the effect on the insurer's solvency position of all reasonably foreseeable and relevant changes in its risk profile (including group-specific risks); and
      (f) its ability to meet its minimum capital requirement and continue in business, and the financial resources needed, over periods longer than those typically used for calculating the regulatory capital requirements.
      Example

      To gauge its ability to continue its business over longer periods, the insurer may use multi-year capital, cash-flow and balance sheet projections
      (4) The insurer must include as part of any quantitative evaluation in ORSA:
      (a) stress tests;
      (b) the occurrence of extreme events to which the insurer is exposed; and
      (c) other unlikely but possible adverse scenarios that would render the insurer's business model unviable.
      Amended by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 2.4.1 Guidance

        In addition to the scenarios in the guidance on stress testing in Schedule 2, the insurer is expected to examine its policies, procedures, controls and solvency positions having regard to the following:

        (a) the future adverse development of claims al notified;
        (b) the uncertainty surrounding provisions for claims incurred but not yet reported;
        (c) significant falls in the yields on supporting assets and investments to cover technical provisions;
        (d) significant falls in the value of investments such as listed equity and real estate;
        (e) significant increases in the likelihood of non-recovery of reinsurance contract assets, reinsurance receivables or cash bank deposits;
        (f) the failure of a major counterparty such as a reinsurer, bank or client;
        (g) the failure of an outsourcing partner (for example, a third-party administrator for a medical insurance business);
        (h) significant deterioration in mortality and longevity experience for insurers conducting long-term insurance business.
        Inserted by QFCRA RM/2013-1 and amended by Editorial changes (as from 1st January 2015).

    • PINS 2.4.2 PINS 2.4.2 Who must conduct ORSA?

      (1) An insurer that is a QFC entity must conduct its ORSA annually.

      Note An insurer that is a branch is not required to conduct ORSA.
      (2) The assessment must be appropriate to the nature, scale and complexity of the insurer's business.
      (3) The insurer's ORSA must include its own assessment of the capital resources needed to manage its business prudently and to continue to meet its insurance liabilities as they fall due, despite the existence of adverse scenarios.
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 2.4.2 Guidance

        1 The methods for conducting ORSA (and making the report) will differ between insurers, but the methods do not necessarily have to be complex. The methods may range from simple stress tests and scenario analysis in a spreadsheet to more sophisticated economic capital models.
        2 The Regulatory Authority expects the governing body of the insurer to use its own judgement to identify realistic adverse scenarios and to develop the rationale for the assumptions, data and methods used in the assessment.
        3 Insurers are expected:
        (a) to be transparent in their approach to ORSA; and
        (b) to maintain records in a way that would enable a third party with sufficient knowledge to understand the assumptions, methods and conclusions.
        Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

    • PINS 2.4.3 PINS 2.4.3 ORSA report

      (1) After an insurer conducts its ORSA, it must prepare a report that includes a statement that the governing body of the insurer participated in the assessment and approved the report.
      (2) An insurer must prepare a revised ORSA report if there is a change to its risk management strategy, strategic plan or business plan and the change results, or there are reasonable grounds to believe that the change will result, in a material change in the capital adequacy or solvency of the insurer.
      Note If an insurer becomes aware, or has reasonable grounds to believe, that an action would result in a material change in the capital adequacy or solvency of the insurer, it must tell the Regulatory Authority about the matter immediately (see GENE, r 4.1.3).
      Inserted by QFCRA RM/2013-1 (as from 1st January 2015).

      • PINS 2.4.3 Guidance

        1 The Regulatory Authority will discuss and evaluate the adequacy and prudence of the insurer's ORSA during the supervisory process. In particular, the authority will look into its adequacy when there is a material change in the insurer's risk management strategy, strategic plan or business plan.
        2 If the assumptions or data used in an insurer's ORSA are inaccurate, inadequate or misleading, or if the Regulatory Authority considers that the underlying method is not sufficiently robust, the authority will require the insurer to conduct a new ORSA or to reconsider its report and prepare a revised report (see GENE, r 5.2.2).
        Inserted by QFCRA RM/2013-1 (as from 1st January 2015).