ORSA (Own Risk and Solvency Assessment)
The ORSA is the firm-specific process every insurer must carry out under Solvency II to assess its overall solvency needs, taking into account its own particular risk profile.
Concept
The ORSA (Own Risk and Solvency Assessment) is a central component of the governance system under Solvency II, under which every insurance undertaking must assess, at least annually, its firm-specific overall solvency needs, taking into account its particular risk profile, risk tolerance thresholds, and business strategy.
Distinction from the Standard Formula
While the regulatory Solvency Capital Requirement (SCR), calculated using the standard formula or an internal model, primarily provides a regulatory minimum capital figure, the ORSA requires a forward-looking, firm-specific assessment going beyond this, of whether the available own funds remain adequate on an ongoing basis given the individual risk situation and planned business development; the ORSA can result in an economic capital need that is either higher or lower than the regulatory SCR.
Relevance for Risk Management
The ORSA process is closely embedded in the undertaking’s risk management system as well as in its business and capital planning, and must also regularly incorporate stress scenarios and sensitivity analyses; the results are presented to management for strategic decision-making and documented in a report made available to the supervisory authority.