Risk Metrics for Decision Making and ORSA
The Joint Risk Management Section of the Society of Actuaries (SOA), the Casualty Actuarial Society (CAS) and the Canadian Institute of Actuaries (CIA), in collaboration with the International Network of Actuaries in Risk Management (IN-ARM), are pleased to release our third essay e-book, this time addressing Risk Metrics for Decision Making and ORSA. This e-book contains 18 topical essays that express the opinions and thoughts of a number of authors on the subject.
The insurance regulatory framework is evolving around the world. The National Association of Insurance Commissioners’ (NAIC’s) Own Risk Solvency Assessment (ORSA) initiative in the United States appears to be echoing the Solvency II ORSA in Europe; both intending to comply with the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS). The intent of these essays is to generate discussion and debate surrounding the principles and ideas underpinning the ORSA initiative and the risk metrics used for decision making. Different points of view are presented and have been welcome. Discussion include:
- What questions does a company need to ask under an ORSA?
- Is an economic capital model required to perform an ORSA?
- Who are the stakeholders? Just the shareholders? How about the debt holders?
- Policyholders? Employees? General public?
- What is the ultimate goal of an ORSA? How do you measure success to maximize the benefit of this type of endeavor?
- Should an ORSA focus on governance, validation and documentation?
- What are the respective roles on the company’s Boards of Directors, and senior management?
- How will this initiative impact external stakeholders, rating agencies, regulators, shareholders, customers?
What one can glean from reading these essays may be perhaps that there should not be one way to do an ORSA. What seems to be a common understanding from the essays is that there needs to be:
- An internal risk management process (called either enterprise risk management (ERM) or ORSA) that covers both the observation and assessment of the entire business landscape, from risk identification to risk measurement to risk reporting, and the corresponding actions one can take that influence, prospectively, this landscape, considering risk appetite, business strategy and capital management.
- Multiple communication outputs, tailored to each audience, to share the risk transparency of the company. The multiplicity of audiences prompts the need for proper framing of the resultant communication consistent with the “eyes” of the beholder. This communication could be called, say, the ORSA report or ORSA template.
It is with great pleasure to congratulate the three articles voted the top three essays in our Call. It carries a cash bonus as well as an invitation to speak at the next ERM symposium in 2013.
1. Understand ORSA Before Implementing It – Anthony Shapella/Owen Stein
2. Effective Resilience and Interdisciplinary Approaches to Risk – Rick Gorvett
3. Focusing on Own Risk of the ORSA Process – Max Rudolph
We hope these essays will provide thought-provoking discussion and commentary in the months and years to come. We welcome further commentary, editorials and rebuttals on this blog to add to our continuing thought leadership on the topic. We may include additional notable commentary on a subsequent edition of the ebook.
David Schraub, FSA, MAAA, AQ, SOA/CAS/CIA Joint Risk Management Council Member
Robert F Wolf, FCAS, CERA, ASA, MAAA Staff Partner, SOA/CAS/CIA Joint Risk Management Section Council