C - OSFI ORSA

Question 1

OSFI ORSA

What is ORSA

Answer 1

tool to understand interrelationships between RISK PROFILE and CAPITAL NEEDS

considers ALL FORESEEABLE and MATERIAL RISKS, DYNAMIC FORWARD-LOOKING and ALIGNED with the business plan

1) Understand capital need
2) Understand solvency position
3) Set Internal Targets

Should contemplate potential adverse capital impacts over a plan horizon (eg. 3 to 5 years)

Question 2

OSFI ORSA

Senior Mgmt and Board should receive timely reports on the insurer’s risk and capital.

5 actions this REPORTING allows Sr. Mgmt to perform

Answer 2

EVALUATE:

1) the level and trend of MATERIAL RISK + potential effect on CAPITAL

2) the SENSITIVITY and reasonableness of ASSUMPTIONS used
3) ADEQUACY OF CAPITAL USING STRESSES AND SCENARIOS

DETERMINE:

4) if insurer holds sufficient capital in relation to targets (both internal and regulatory)

5) FUTURE CAPITAL NEEDS and make adjustments to the strategy if necessary.

Question 3

OSFI ORSA

7 fields of dialogue the review of ORSA and ORSA report from OSFI allows.

Answer 3

1) Methodology, Assumptions, Data supporting estimates of risk explicitly captured in Regulatory Capital Guidelines
2) Risks not fully captured by regulatory capital guidelines
3) External factors, including stress testing, impact of economic cycles
4) level and quality of insurer capital
5) quality of the assessment using a range of stress scenarios included in the ORSA
6) Limitations of the ORSA and how these are communicated to the Board.
7) Identification of best practices and potential gaps arising from cross-sector review of ORSA.

Question 4

OSFI ORSA

2 elements that the insurer should be cautious of when determining own capital needs when performing an ORSA.

Answer 4

1) need to adjust for methodologies that may not be calibrated using the desired confidence level or time horizon
2) consider dependencies, concentration and interactions

Question 5

OSFI ORSA

Considerations when SETTING INTERNAL TARGET in ORSA

Answer 5

ensure internal target EXCEEDS STCR.

consider impact of a RANGE OF ADVERSE SCENARIOS and ability to AVOID going below MCR or STCR

INTEGRATE RESULTS OF STRESS TESTING AND REVERSE STRESS TEST (DCAT) in ORSA to determine internal targets

CONSIDER FUTURE PLAN AND FORESEEN CHANGE TO RISK PROFILE

Question 6

OSFI ORSA

Sr. management responsibilities related to ORSA

Answer 6

DESIGN and IMPLEMENTATION of ORSA

Sr Mngmnt should have good understanding of :

• • the nature of risk exposure,
• • the risk mitigants
• • RM techniques
• • oversight process

And : HOW THESE RELATE TO ADEQUATE LEVEL OF CAPITAL