OSFI - ORSA

Question 1

What is the general goal of the ORSA?

Answer 1

To enhance the insurer’s understanding of the relationship between risk profile & capital needs.

Question 2

Does OSFI approve an insurer’s ORSA?

Answer 2

NO, but OSFI will REVIEW a company’s ORSA as part of its assessment of the company.

Question 3

What is the relationship between ERM (Enterprise Risk Management) & ORSA?

Answer 3

ERM & ORSA should be WELL-INTEGRATED so that analyses and results are consistent between them.

Question 4

Identify ORSA’s key elements. (5)

Answer 4

• RISK identification & assessment
• RELATE risk to capital
• Oversight
• (M&R) MONITORING & REPORTING of risks
• (I&O) INTERNAL controls & OBJECTIVE review

Question 5

Describe the ORSA key element ‘Risk Identification & Assessment’.

Answer 5

To identify & assess the materiality of foreseeable & emerging risks.

Question 6

Describe the ORSA key element ‘Relating Risk to Capital’. (3)

Answer 6

• set ICT (Internal Capital Target) using stress-testing techniques
• must WITHSTAND a specified loss without falling below (Supervisory Capital Requirements)
• review reasonableness and appropriateness of the risk profile and capital requirements in the context of the board approved risk appetite and risk tolerance

Question 7

Describe the ORSA key element ‘Oversight’.

Answer 7

Sr Mgmt Responsibility: Should have a good understanding of :

• nature and significance of risk exposure
• risk mitigants
• risk management methods
• capital adequacy

Question 8

Describe the ORSA key element ‘Monitoring & Reporting’.

Answer 8

ANNUAL REPORTS to Board of Directors and Senior Management on risk profile & capital management.

Question 9

Describe the ORSA key element ‘Internal Control & Objective Review’.

Answer 9

REVIEW for accuracy, integrity and reasonableness.

OBJECTIVE REVIEWER: internal or external auditor OR skilled professional not involved in the ORSA process.

Question 10

Is ORSA process the same for all federal insurers?

Answer 10

YES and NO:
- key elements are the same (make sure to list them)
BUT
- specifics differ by company DEPENDING on the risk profile & NSC (Nature/Scale/Complexity) of their operations

Question 11

Should ORSA be used to set ICT (Internal Capital Target)?

Answer 11

YES, an important step of ORSA is to set the ICT, since the ICT considers insurer-specific risks.

Question 12

What is the relative importance of quantitative and qualitative aspects of ORSA?

Answer 12

The quantitative and qualitative aspects of are relatively important.

Question 13

Regarding ORSA key element #2 (Relating Risk to Capital), identify the possible approaches to calculating the ICT. (3)

Answer 13

• COMPLEX INTERNAL model: for complex risks
• SIMPLE MODEL: with conservative assumptions
• QUALITATIVE: includes expert judgement for difficult-to-quantify risks

Question 14

Describe the similarities between DCAT (now FCT) & ORSA. (3)

Answer 14

• both are concerned with risk identification & control
• both are concerned with capital requirements
• both are submitted to BoD (Board of Directors) & regulators

Question 15

Describe the differences between DCAT (now FCT) & ORSA. (3)

Answer 15

• GUIDELINES: FCT uses CIA SOPs, ORSA uses OSFI guidelines
• METHODS: FCT quantitative only, ORSA both qualitative & quantitative
• REPORT: FCT by AA, ORSA by management responsibility

Question 16

Identify advantages of ORSA over MCT. (4)

Answer 16

ORSA:
- includes ALL material risks
- uses stress-testing to set the ICT
- qualitative (as well as quantitative)
- admits assessment of internal controls
MCT: doesn't do the things listed above