Pillar 2

The objective of the ORSA process is to:

• Assess if the risks are properly identified and controlled
• Ensure a perfect match between the profile of the risks incurred, the captive’s capacity to absorb them and its appetite for risk

The captive must therefore be capable of delivering a prospective analysis of its own funds and demonstrate that it can mobilise the necessary capital in order to satisfy the need in capital – represented by the margin of solvency throughout the period of strategic planning.

We must therefore develop and research a large number of future scenarios (defined in function of the most significant risks), in order to scale the risk parameters and compare the different risk margins as well as the needs in terms of respective capital. We are then required to take recapitalisation measures or risk mitigation if necessary. We are able to conclude if the tolerance limits are exceeded and if measures must be taken.

The ORSA process in 9 steps:

Actuarial work within ORSA process:

SCR ORSA: which are the global Solvency requirements (Step 5)?

In case of use of the Standard Formula (SF):

• Are all risks included in the SF?
• Are the parameters of SF appropriate to the risk profile?
• What happens in case of change in mitigation techniques?

1. Review of parameters:

• Calculation of USP premium & reserve for Non Life UW SCR,
• In case of USD reference currency, review of currency shock.

2. Sensitivity stress tests:

• Effect of a 50 bp increase in Govies and Corporate Bonds,
• Effect of a yield curve – 50bp or + 50 bp,
• Uncertainty in Best Estimate valuation,
• Changes in the reinsurance program,
• Effect of No diversification,
• …

Prospective assessment (Step 8):

1. Based on SBP on 3/5 years period, calculation of the Solvency II available capital and SCR ORSA

2. Scenarios:

• definition of Scenarios in function of the sensitivity stress tests and the Board requirements;
• Calculation of Solvency ratio by scenario.