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Being more open about the risks a company faces and how they are being managed could boost a company's rating and attract policyholders, said Tristan Garnons-Williams, policy adviser on Solvency II at the Association of British Insurers (ABI).
Tobias Buecheler, head of the Solvency II project at Allianz, said increased transparency could boost valuations over time, but he warned that it was inappropriate to disclose some information as it could be confusing or detrimental to the company.
Full disclosure of a firm's macro risk strategies could damage the company and the wider financial markets, Buecheler said. "If you look at the big-picture side of the ORSA, we obviously include our reaction to the euro sovereign crisis [in the report] about what would happen if certain EU Member States should fail. That is certainly a piece of information that, at this point in time, should not be shared because it might actually create side effects, and could turn against us. If the whole insurance industry says ‘this is actually our plan for the failure of XYZ country', what will happen to the market?"
Disclosing risk management strategies to shareholders could deter insurers from using certain mechanisms – such as reverse stress tests – if they produced results that made a firm look vulnerable. In such a case, increased transparency could actually undermine the ORSA's purpose as an ‘honest assessment' of insurers' risk, it was argued.
But Garnons-Williams insisted that the ORSA represents a space for the insurer within the Solvency II process to champion its governance structures and boost its public profile. "I think the ORSA is one of those areas where it can grow the value of a firm. If you're going to be disclosing absolutely everything – like saying ‘I'm not going to pay a dividend if I get into trouble this year' – that's not going to be conducive to creating value, but I think on the whole the ORSA and Solvency II do represent a chance to paint a better light on both shareholder value and policyholder protection", he said.
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