20 March 2013

Risk.net: US insurers expect less benefit from ORSA than European firms

Insurers expect to derive significant benefits from undertaking an Own Risk and Solvency Assessment (ORSA), but many companies are struggling to implement key aspects, according to a survey of insurers' enterprise risk management practices.

Almost 90 per cent of insurers globally expected the ORSA, such as that required for Solvency II, or a similar risk assessment process, to be beneficial to their business. And nearly half expected significant benefits to be gained from the process, the survey by consultancy Towers Watson found.

But North American insurers were less positive than those in other regimes about the potential benefits of conducting an Orsa. Only 20 per cent of North American companies expected to see significant benefits from continuous solvency monitoring compared with 41 per cent of insurers in other regions. Similarly, 37 per cent of American insurers said projecting solvency and capital requirements would provide significant benefits compared with 53 per cent in other regions.

But despite the expected benefits of undertaking an ORSA, one-third of companies globally said implementation presented significant challenges. This was particularly evident for European life insurers, with 40 per cent finding projecting solvency and capital requirements to be a major challenge, and 36 per cent struggling with continuous solvency monitoring.

UK insurers were the most advanced in terms of ORSA implementation, according to the survey, with 69 per cent having assessed their current capital needs and one-third having completed a full ORSA report, undertaken sensitivities and scenario testing, projected their capital position or educated the board on the ORSA.

Insurers in continental Europe were less advanced than those in the UK, with only 10% having completed a full Orsa report and one-fifth having undertaken sensitivities and scenario testing or projected their capital position. Thirty-six per cent of insurers had assessed their current capital position. North American insurers were at a similar level of preparedness.

The lower benefit expected by North American insurers was a reflection of the US being at an earlier stage in developing its ORSA regime than Europe, says Niamh Carr, a senior consultant at Towers Watson in London. A pilot project was undertaken in 2012, with another taking place this year. "I don't think US insurers have a fundamentally different point of view, they are just at an earlier stage in looking at what they need to do", she says.

The fact that many insurers were struggling to meet some of the Orsa components, such as continuous solvency monitoring, showed companies should not overcomplicate the system requirements of Orsa implementation, Carr suggests.

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