The Committee of Insurance and Occupational Pensions Supervisors (CEIOPS) have invited stakeholders’ comments on their views on the Own Risk and Solvency Assessment (ORSA) in the Framework Directive Proposal for the Solvency II regime. The Framework Directive, published last year, prescribes the ORSA as part of the risk management system of every insurance and reinsurance undertaking.

Article 44 of the Solvency II Framework Directive describes the ORSA as a tool in firms’ risk management systems which requires insurers and reinsurers to assess both their long and short term risks and the amount of own funds required to cover those risks. Further, the ORSA will be an important source of information for the supervisory authorities. The ORSA aims to enhance firms’ awareness of the relationship between risks and internal capital requirements - whether a firm uses the standard or internal SCR formula. As CEIOPS remarks “the assessment by the undertaking of its own position in terms of risk and solvency is crucial for the implementation of a risk-based regime such as Solvency II”.

As some stakeholders, particularly SMEs, have expressed concern about how demanding the ORSA might be on their businesses, CEIOPS have decided to advance the discussion of the ORSA to help firms understand what may be required. In this issues paper CEIOPS explains its preliminary views of the definition and importance of the ORSA. In addition the paper includes some principles and guidance which may, however, develop over the implementation process of the Solvency II regime.

The issues paper only considers the ORSA as a requirement on undertakings; issues relating to how supervisors review the ORSA, the requirements on supervisory reporting and how supervisors may use the output from the ORSA will be covered by other issues papers which CEIOPS will publish later.

Comments on the paper are due by 27 August 2008.

For further information: CEIOPS - issues paper on Own Risk and Solvency Assessment