It aims to assess, in a continuous and prospective way, the overall solvency needs related to the specific risk profile of the insurance company.
Impacts in terms of risk and solvency should supply into upstream strategic decisions.
The internal assessment process of risks and solvency, known as the ORSA, is the centerpiece of this plan.
In an operational way, the ORSA is part of global process of enterprise risk management (ERM).
It aims to provide a reasonable insurance on compliance with the strategy of the company against risks.
The ORSA is voluntarily defined broadly by the regulation to encourage insurers to question themselves on the framework of an internal system dedicated to control and risk management.
That assessment shall include at least the following: (a) the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy of the undertaking; (b) the compliance, on a continuous basis, with the capital requirements, and with the requirements regarding technical provisions; (c) the significance with which the risk profile of the undertaking concerned deviates from the assumptions underlying the Solvency Capital Requirement.
Since the creation of EIOPA in January 2011, its responsibilities were, however, extended to the production of Level 3 binding measures.
The State legislative process is still ongoing, but we can anticipate the regulation to be fully in place in 2015.
Similar to Solvency II, Insurers and Reinsurers registered in South Africa will be required from 1 April 2017 to perform regular ORSAs.
For that the insurer must establish a set of systematic processes to monitor and control continuous compliance with the risk limits and identify major events – internal or external – which have a significant impact on the risk profile and lead to the update of the ORSA.