Insurers' calls for more guidance on how the proportionality principle will be applied in the Own Risk and Solvency Assessment (ORSA) were resisted in the European Insurance and Occupational Pensions Authority's (EIOPA) updated guidance on the ORSA.
EIOPA's final report and guidance, which followed a public consultation, had responded to many of the insurance industry's concerns and provided more clarity, experts said. But there were a number of significant changes.
EIOPA rejected calls for the ORSA's risk quantification requirements to be limited to those risks that could easily be quantified. There was no reason, it said, not to attempt to quantify such risks and assess their magnitude, as it was important for companies to understand the risk and its potential impact.
Experts said EIOPA had recognised the difficulty in quantifying some risks by allowing firms to report a range of values. EIOPA also refused to provide further clarification of the proportionality and materiality principles in terms of its application by companies and its assessment by supervisors.
Insurers should develop their own ORSA processes tailored to fit into their organisational structures and risk management systems with appropriate and adequate techniques to assess the company's overall solvency needs, EIOPA said.
But EIOPA relaxed the rules in some areas, following feedback from firms. Companies will no longer need to quantify their overall solvency needs for each separate year of the ORSA projection period.
Instead, firms will need to cover their prospective solvency needs over an appropriate multi-year time horizon – although EIOPA recognised that this approach may be less reliable.
Consultants say the change represents a significant simplification of the calculation process and addresses an issue that was a serious concern for many companies, particularly those not developing a full internal model.
Full article (Risk.net subscription required)
© Risk.net
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article