Swiss ORSA – The Insurance Market Reaction

in Financial Services, 04.02.2016

Following the recent issue of a new FINMA circular on ORSA (Own Risk and Solvency Assessment), KPMG Switzerland surveyed leading Swiss insurers to evaluate their response to the new requirements and assess preparedness to comply. Results varied significantly, but one thing is clear: there is still work to be done!

Overview

With Solvency II live, ORSA is already business as usual for European insurers. In an important step towards convergence with the EU regulatory regime, FINMA recently issued an ORSA circular detailing the Swiss regulator’s guiding principles. The 31 January 2017 reporting deadline is fast approaching and Swiss insurers are under pressure to build internal processes and capabilities to meet the new requirements.

The ORSA Survey – Key findings

At the end of last year KPMG Switzerland conducted a first Swiss ORSA Survey dedicated to assessing the insurance market’s reaction to the new regulation. Our study outlines the major differences between the EU and Swiss ORSA requirements and assesses Swiss insurers’ relative ability to comply.

  • ORSA at the top of the agenda: It was interesting to discover that 60% of respondents had made limited or no progress by the end of last year, but many of them placed the ORSA at the top of their Chief Risk Officer’s (CRO) priorities in the lead up to January 2017. General attitude to the regulatory release was positive with 77% expecting the ORSA to bring benefits to risk management ability and wider governance frameworks, although it is clear that a number of companies just see this as another compliance exercise. In our view, successful implementation requires significant resource commitment and is best deployed through effective collaboration between risk, actuarial and finance departments with significant senior leadership involvement. However, over 90% of firms recognised that producing the ORSA will generate a resource strain across a number of those areas.
  • Few plan to present Internal Capital Model results: We were surprised to find that only 15% of respondents plan to present the results of an internal capital model in addition to the model used for the SST submission. In our opinion, this is a missed opportunity to present companies’ own view on solvency requirements to the regulator.
  • Insurers plan to leverage Solvency II ORSA programmes: We discovered that firms that have already made progress have done so largely due to their ability to leverage existing ORSA processes from group companies with European presence, with over 90% of European firms saying that their Solvency II ORSA programme is at least partially transferable to the Swiss ORSA. Others are more challenged and need to build new processes from the ground up. Regardless, it is crucial that organisations commit sufficient management time and resources to ensure that FINMA’s requirements are met ahead of the deadline.

Key Future Priorities

Whilst many firms still see ORSA as a compliance task, we strongly advocate embracing it as an insightful and value adding exercise that can help insurance executives manage their business better. In our opinion, this shift of attitude most effectively utilises ORSA’s unique positioning at the heart of the business ensuring the integration of strategy, risk and capital on a forward-looking basis. To achieve this, organisations must build ORSA frameworks that are “fit for purpose”, which requires the development of successful operating models leveraging robust processes and people capabilities.

 

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