fr berry presentation (final)
TRANSCRIPT
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Actuarial Society 2016 Convention 23 – 24 November 2016
ORSA Business Unusual: Exploring the value of a well defined ORSA processFrancois Berry and Susan
Hunt
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Actuarial Society 2016 Convention 23 – 24 November 2016
GlossaryFrancois dozing off
Francois psyched
Francois trying to explain (CPD)
Francois slightly perplexed
CFO of an insurer
Regulatory Consultant Sue
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1 x 1 6 / 3 3 - 0
2 x 2 4 + 1
2 x 3
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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!” ?
Even though the US elections have shown that polls are useless
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Actuarial Society 2016 Convention 23 – 24 November 2016
Agenda1. 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
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Actuarial Society 2016 Convention 23 – 24 November 2016
Business as Usual
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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
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Actuarial Society 2016 Convention 23 – 24 November 2016
Why BAU no longer exists…
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Actuarial Society 2016 Convention 23 – 24 November 2016
Interconnectedness
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Actuarial Society 2016 Convention 23 – 24 November 2016
When Politics and Markets Collide
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Actuarial Society 2016 Convention 23 – 24 November 2016
Global Regulation
Title
RDR
Basel III
TCF
Solvency II
Conduct Risk
Reviews
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Actuarial Society 2016 Convention 23 – 24 November 2016
ORSA as the saving grace… (The light at the end of the regulatory tunnel)
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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
Be a professional
External
Environme
nt
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Actuarial Society 2016 Convention 23 – 24 November 2016
What are we doing…. (The research referred to in the abstract…)
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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
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Actuarial Society 2016 Convention 23 – 24 November 2016
What we should be doing…
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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
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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…
The Report
Static ||Dynamic
Static || Static
Dynamic
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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
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Actuarial Society 2016 Convention 23 – 24 November 2016
How to improve risk reporting…
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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
AssessmentStrategy vs
RiskProper
GovernanceCommon
Risk Language
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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
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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 12Business 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 process¼
Monitor
¼ Monito
r
¼ Monito
r
¼ Monito
r
RMC RMC RMC Board RMC
Independent review and challenge
ORSA lite
ORSA lite
ORSA lite
Annual
ORSAQRT QRT QRT QRT
SFCR RSR
Update
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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
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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
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Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Reporting and Monitoring
Board Involvement
Documentation, good reports
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Actuarial Society 2016 Convention 23 – 24 November 2016
Thoughts on ORSA End State
Board Involvement
Reporting and Monitoring
Board Involvement
Documentation, good reports
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Actuarial Society 2016 Convention 23 – 24 November 2016
What I imagine…
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Actuarial Society 2016 Convention 23 – 24 November 2016
“I have a dream…”
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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)
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Actuarial Society 2016 Convention 23 – 24 November 201630
Any Questions….
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