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FR Berry Presentation (Final)
- 1. Actuarial Society 2016 Convention 23 – 24 November 2016 ORSA Business Unusual: Exploring the value of a well defined ORSA process Francois Berry and Susan Hunt
- 2. Actuarial Society 2016 Convention 23 – 24 November 2016 Glossary Francois dozing off Francois psyched Francois trying to explain (CPD) Francois slightly perplexed CFO of an insurer Regulatory Consultant Sue 2 1 x 1 6 / 3 3 - 0 2 x 2 4 + 1 2 x 3
- 3. Actuarial Society 2016 Convention 23 – 24 November 2016 Crowd Participation (Quick Poll) • Q1: Who has been part of the ORSA process in an Insurance Company? • Q2: Who came out of that process and thought: “Wow – this has been useful!” ? 3
- 4. Actuarial Society 2016 Convention 23 – 24 November 2016 Agenda 1. Business As Usual 2. Why BAU No Longer Exists 3. ORSA as a Saving Grace 4. What Are We Doing? 5. What We Should Be Doing 6. How to Improve Risk Reporting 7. Q&A 4
- 5. Actuarial Society 2016 Convention 23 – 24 November 2016 Business as Usual 5
- 6. Actuarial Society 2016 Convention 23 – 24 November 2016 Business As Usual (BAU) BAU (official Wikipedia definition) is the “Unchanging state of affairs despite some difficulties.” A situation that has returned to its usual state after an unpleasant or surprising event (Quick reversion to normality) By my own deductive reasoning: Business unusual – is then a changing state of affairs because of some difficulties – and not changing back to the usual state 6
- 7. Actuarial Society 2016 Convention 23 – 24 November 2016 Why BAU no longer exists… 7
- 8. Actuarial Society 2016 Convention 23 – 24 November 2016 Interconnectedness 8
- 9. Actuarial Society 2016 Convention 23 – 24 November 2016 When Politics and Markets Collide 9
- 10. Actuarial Society 2016 Convention 23 – 24 November 2016 Global Regulation Title RDR Basel III TCF Solvency II Conduct Risk Reviews 10
- 11. Actuarial Society 2016 Convention 23 – 24 November 2016 ORSA as the saving grace… (The light at the end of the regulatory tunnel) 11
- 12. Actuarial Society 2016 Convention 23 – 24 November 2016 ORSA is a Control Cycle Strategy The Unknown Optimal Capital/ ERM Your Risk Profile Forward-looking Actuarial Control Cycle Define Problem Design Solution Monitor Results Be a professional 12
- 13. Actuarial Society 2016 Convention 23 – 24 November 2016 What are we doing…. (The research referred to in the abstract…) 13
- 14. Actuarial Society 2016 Convention 23 – 24 November 2016 What most companies are doing… Budgeting & Planning Risk and Valuation Reports ORSA Report Compliance reports Monthly Operational Reports Strategy Report WTF?! Solvency Report Reserving Report Monthly, Quarterly and Annual Financial Reports 14
- 15. Actuarial Society 2016 Convention 23 – 24 November 2016 What we should be doing… 15
- 16. Actuarial Society 2016 Convention 23 – 24 November 2016 What should be happening Monthly, Quarterly and Annual Financial Reports Budgeting & Planning Risk and Valuation Reports Compliance reports Monthly Operational Reports Strategy Report Solvency Report Reserving Report ORSA PROCESS ORSA Report 16
- 17. Actuarial Society 2016 Convention 23 – 24 November 2016 TITLE Forward Looking Strategy & Environment Financial Results and Solvency Policies, Risk Framework, Vision & Mission Subtext… Subtext… Subtext… Subtext… Subtext… Static ||Dynamic Static || Static Dynamic 17
- 18. Actuarial Society 2016 Convention 23 – 24 November 2016 Which now transforms the Board from BORED to engaged… Update to the dynamic sections of your ORSA report Past Future 18
- 19. Actuarial Society 2016 Convention 23 – 24 November 2016 How to improve risk reporting… 19
- 20. Actuarial Society 2016 Convention 23 – 24 November 2016 Improving Risk Reporting • Well defined taxonomy • Categories of risk • Risk assessment • Risk appetite and tolerance • Accountability resides with the board • Board and management should align risk appetite • Structure should enable timely decision-making • Can models be trusted? • Are proxy models possible? • Document models adequately • Appreciate difference between SRM & ERM • SRM focuses on adding business value Capital Adequacy Assessment Strategy vs Risk Proper Governance Common Risk Language 26
- 21. Actuarial Society 2016 Convention 23 – 24 November 2016 • Long and static reports • Lack of forward looking analysis • Focus on meeting compliance • No one company was a leader across all the assessment criteria. • Reports more concise • Improvement in: looking forward, stress and scenario testing, the capital model • ORSA still not used as tool • Move from annual to quarterly process • Companies struggle to align ORSA with BAU activities THEMESEARLY DEVELOPMENTSLATER UK ORSA Reports 20
- 22. Actuarial Society 2016 Convention 23 – 24 November 2016 Thoughts on ORSA End State Month 1 2 3 4 5 6 7 8 9 10 11 12 Business planning / strategy Risk and capital management Risk strategy / appetite Material risk assessment (‘Risk Identification’, ‘Stress and scenario testing’) Forecasting (‘Risk projection’) Economic Capital (‘Risk projection’) Risk analysis Capital allocation Reporting Boards and committees Governance Annual process ¼ Monitor ¼ Monitor ¼ Monitor ¼ Monitor RMC RMC RMC Board RMC Independent review and challenge ORSA lite ORSAlite ORSAlite Annual ORSA QRT QRT QRT QRT SFCR RSR Update 21
- 23. Actuarial Society 2016 Convention 23 – 24 November 2016 Thoughts on ORSA End State Reporting and Monitoring Board Involvement Reporting and Monitoring Board Involvement Documentation, good reports 22
- 24. Actuarial Society 2016 Convention 23 – 24 November 2016 Thoughts on ORSA End State Reporting and Monitoring Board Involvement Reporting and Monitoring Board Involvement Documentation, good reports 23
- 25. Actuarial Society 2016 Convention 23 – 24 November 2016 Thoughts on ORSA End State Reporting and Monitoring Board Involvement Documentation, good reports 24
- 26. Actuarial Society 2016 Convention 23 – 24 November 2016 Thoughts on ORSA End State Board Involvement Reporting and Monitoring Board Involvement Documentation, good reports 25
- 27. Actuarial Society 2016 Convention 23 – 24 November 2016 What I imagine… 27
- 28. Actuarial Society 2016 Convention 23 – 24 November 2016 “I have a dream…” 28
- 29. Actuarial Society 2016 Convention 23 – 24 November 2016 Conclusion • There is no such thing as business as usual (2016 can be used as evidence) • All this regulation gave birth to something really useful – ORSA • ORSA is quite ORSA…M! (He he) 29
- 30. Actuarial Society 2016 Convention 23 – 24 November 2016 Any Questions…. 3030
Editor's Notes
- Made famous by this guy during the first world war….
- Needs updating….