The Lloyd’s Market Association (LMA) has published guidance on how own risk & solvency assessment (ORSA) reports can “promote a risk and capital culture” which balances the various competing interests in a business.
The guidance acknowledges that there are tensions between the requirements of the PRA and FCA, which regard the ORSA report as a way to obtain detailed information about managing agents, and managing agents’ board members, who it considers tend to engage best with brief, focused reports. The tension is particularly apparent when the purpose of the ORSA is considered – to enable managing agents, rather than the regulators, to assess risks and the amount of capital which is necessary to cover these risks.
The LMA’s suggested way of dealing with this tension is for managing agents to treat ORSA as an ongoing process throughout the year, and to create a distinction between the high-level summary which is provided to a managing agent’s board and the detailed information which a managing agent provides to the regulators.
The guidance also noted the widespread adoption of ORSA, or a similar requirement, by regulators outside the EU. The guidance contains a list of regulators which have adopted ORSA/similar requirements, and a helpful summary of the requirements they have adopted.
The overall message in the guidance is that the LMA Chief Risk Officers’ Committee is “very supportive” of ORSA, and states that it is a “material positive feature” that insurers can develop ORSA in a way that suits them.