As the implementation date of 1 January 2016 for Solvency II draws closer, reinsurance and insurance undertakings in Ireland are well under way with their Solvency II implementation programmes. One of the key elements of the new Solvency II regime is the Own Risk and Solvency Assessment ("ORSA"). The ORSA relates to the uncertainties associated with delivering an undertaking's commercial objectives and ensuring that those uncertainties are practically understood and managed with appropriate resources, so the risk profile of the undertaking concerned remains within the risk parameters set by the Board of Directors. At all times, ownership of the ORSA rests with the individual Boards of Directors of insurance and reinsurance undertakings.
A New Prudential Supervisory Approach
The Irish Government is currently in the process of transposing into Irish law the Solvency II Directive (Directive 2009/138/EC) as amended by the Omnibus II Directive (Directive 2014/51/EC) which will become effective across all twenty eight EU Member States from 1 January 2016.
The Solvency II regime represents a significant reform of European insurance legislation affecting life, non-life and reinsurance undertakings and will establish harmonised requirements across the EU.
Solvency II will introduce economic risk-based solvency requirements meaning that risk is measured on consistent principles and that capital requirements are aligned with the underlying risks of the insurance or reinsurance undertaking concerned.
In Ireland, the Solvency II regime will be given legal effect by secondary legislation in the form of Statutory Instrument. The Solvency II Directive will also be supplemented by more detailed technical Commission Level 2 measures and they in turn will be supplemented by Level 3 guidance for national supervisors developed and adopted by the European Insurance and Occupational Pensions Authority (EIOPA).
What does the ORSA involve?
All insurance and reinsurance undertakings are obliged as part of their risk management system to conduct their own ORSA. The Solvency II regime requires that the ORSA must include:
(i) the insurance or reinsurance undertaking's overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and business strategy;
(ii) compliance, on a continuous basis, with Solvency II requirements for capital and technical provisions; and
(iii) the degree to which the insurance or reinsurance undertaking's...