ORSA SWITZERLAND
INSIGHT INTO THE STATUS QUO OF SWISS INSURERS AND REINSURERS May 2018
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MANAGEMENT SUMMARY The present study examines the implementation progress of the ORSA at Swiss direct-, re- and health insurance companies. The findings from expert interviews and anonymized questionnaires show that ORSA has been established as a planning tool and is used as a reporting tool for the management and the Board of Directors. Many participants expect a stronger practical orientation from the supervisor FINMA. The strong influence FINMA exerts is seen as a contrast to the principle of an „Own Risk and Solvency Assessment“, many study participants criticize. Smaller companies would welcome clearer rules. The benefits the surveyed companies see in the implementation of ORSA are a strengthening of the companywide risk perspective, development and calculation of scenarios, and an increasing risk awareness. Two thirds of the respondents see ORSA as real benefit. However, the effort in regards to coordinating the various inputs at different points in time is perceived as very high. Almost three quarters of the companies surveyed have expanded their existing processes in the process of implementing ORSA. In particular, health insurers have made strategic adjustments in terms of risk tolerance as well as investment mix and strategy. Compared to the ORSA study 2017, the priority of the challenges has shifted. As in the previous year‘s study, the definition of a life-threatening scenario represents the central challenge for direct and health insurers. Study participants indicate to struggle with the determination of realistic existence-threatening scenarios. Furthermore, coping with organizational complexity and internal timing are challenging for many companies. Compared to the previous year, the preparation of the report for different recipients, the formalization of the processes and for health insurers, dedicating the necessary resources seem to have become less problematic. With regard to the number of scenarios considered, the survey indicates that direct insurers and health insurers took into account more scenarios than in the previous year, whereas reinsurers included fewer scenarios. Several respondents have integrated additional perspectives. The planning horizon used has not changed and is usually three years. The SST ratio after three years is between 150% and 300% for the majority of respondents. Most of the surveyed companies completed the current ORSA report between November 2017 and January 2018. The report is typically communicated to the Board of Directors and the Executive Board. The size of the ORSA report measured by the number of pages remained the same for one-half of the direct- and reinsurance companies and increased for the other half. The reports of the vast majority of health insurers have not changed in size. The scope of the ORSA report is related to the size of the companies. From the supervisory category, it can also be deduced that smaller companies estimate the technical challenges greater than bigger companies do. Overall, the results suggest that large companies have made further progress with the implementation of the ORSA than smaller companies. Looking ahead, there are no urgent actions to recommend. Rather, two questions arise: Can the benefits of ORSA as a steering tool be increased? Can the effectiveness and efficiency of the process be improved?
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Illustration 1: Methodic approach
EVALUATION AND INTERPRETATION
QUANTITATIVE AND QUALITATIVE SURVEY
ORSA STUDY 2018
COMPARISON WITH THE RESULTS OF THE ORSA STUDY 2017
Illustration 2: Which line of business is your company in? (N=36)
Health Insurance
26%
Direct Insurance
40%
Reinsurance
34%
Illustration 3: Please select the supervisory category to which your company is assigned (N=36) 35% 30%
8%
25% 20% 15%
13% 3% 5%
16%
11%
8%
11%
10% 5%
3% 13%
3% 3%
5%
0% Category 2
Category 3
Category 4
Category 5
no information
n Direct Insurance n Reinsurance n Health Insurance
2
Illustration 4: How do you assess the level of implementation of ORSA within your company? (N=36)
Existing processes were expanded ORSA offers real added value for our company
8%
64%
11%
57%
ORSA is embeded in strategic decisions
19%
A GAP analysis was done ORSA processes were industrialized (standardized, partially automated) ORSA is essentially a compliance exercise
0%
26%
39%
3%
25%
26% 20%
6% 6%
25%
31%
17%
8% 3%
20%
47%
17% 6%
17%
3%6% 23%
19% 49%
40%
60%
11% 9%
80%
100%
120
n agree n rather agree n neither nor n rather do not agree n do not agree
3
Illustration 5: How do you assess the following implementation challenges? (N=36) 14%
Definition of an existence-threatening scenario
36%
17%
Timing / Deadlines
22%
Availability of human resources
6%
33%
Interpretation of regulatory requirements
6%
31% 22%
Synchronization with planning processes (strategy / budget)
6%
Quantification of the scenarios
6%
26%
Determination of the scenarios
3%
28%
Avoid duplication in the process
3%
19%
Find the optimal balance between your own benefit and regulatory excellence
8%
19%
Convincing your own organization of the added value of the ORSA
3% 14%
Preparation of the report for different recipients
3% 14%
Integration into the existing framework of risk appetite / tolerance / limits
3% 8% 0%
6%
19%
8%
28%
33%
8%
28%
44%
25%
28%
17% 25%
8%
53%
11%
61%
8%
14%
36%
36%
44%
8% 11%
33%
47%
31% 40%
6% 11%
28%
39%
20%
11%
14%
33%
6%
3%
11%
49%
25%
8%
11%
28%
8%
25%
33%
28%
Formalization / documentation of processes and structures
8%
31%
14%
Assessment over the entire planning horizon
Availability of expertise / competence
33%
60%
6% 11%
80%
100%
n great n rather great n medium n rather low n low
Illustration 6: The five biggest challenges by line of business in descending order (by mean) Direct Insurance
Reinsurance
Health Insurance
1. Definition of an existencethreatening scenario
1. Synchronization with planning processes (strategy / budget)
1. Definition of an existencethreatening scenario
2. Timing / Deadlines
2. Consideration over the entire planning horizon
2. Convincing your own organization of the added value of the ORSA
3. Find the optimal balance between your own benefit and regulatory excellence 4. Synchronization with planning processes (strategy / budget) 5. Quantification of the scenarios
3. Definition of an existencethreatening scenario
3. Quantification of the scenarios
4. Timing / Deadlines
4. Integration into the existing framework of risk appetite / 5. Determination of the scenarios tolerance / limits 5. Avoid duplication in the process
4
120%
Illustration 7: Have there been changes because of the ORSA since its introduction concerning … ? (N=36) 50%
50%
46% 45% 40% 35%
33% 30%
30%
30%
25% 20%
20% 15%
13%
15%
8%
10%
13%
10%
13% 10%
8%
8% 7%
7%
7%
7%
5% 0%
0% ing
gy
ate Str
n lan
s ces
pro
pp
ka
Ris
/p
0%
te eti
ibi
ns
spo Re
es liti
ra
ole
kt
Ris
e nc tm en
tm ves f in no
a Ad
io
Ad
em uir
eq gr
n
riti
rw
e nd
nu
t pta
io
tat ap
tra
ds
n ix a
0%
0% ts en
y teg
ial
nc
a Fin
p/
e
s tee ran
th of
u Gro
0%
Int
0% 0%
l
a ern
0% 0%
e nc
a sur
in Re
ty
i uid
Liq
0% 0%
g nin
n
pla
nd
e ivid
g nin
n
pla
D
a
gu
Direct Insurance Reinsurance Health Insurance
Illustration 8: Planning horizon of the ORSA for direct insurers (N=15), reinsurers (N=13) and health insurers (N=10)
20% 13%
5 and more years 4 years
8% 0%
0% 0%
67%
3 years 0
20
40
60
80
Direct Insurance
100
100%
92% 0
20
40
60
80
Reinsurance
100
0
20
40
60
80
100
Health Insurance
5
Illustration 9: What is the impact of the following areas on the development and selection of scenarios? (N=34)
Riskmanagement
50%
Actuarial office
19%
Executive Management
19%
Finance
42%
6%
Legal / Compliance
8% 0
11%
17%
36% 11%
8%
14%
39%
14%
Board od directors
33%
64%
14%
28%
14%
17%
8%
19%
17%
36%
22%
19%
39%
20
6% 3%
31%
40
60
80
100
very big big medium low very low
Illustration 10: Number of assessed scenarios of direct insurers (N=15), reinsurers (N=13) and health insurers (N=10)
80%
80%
80%
70%
70%
70%
60%
60%
50%
50%
Reinsurer
0%
Health insurer
6 and more
0%
10% 5 Scenarios
0%
10%
4 Scenarios
10%
3 Scenarios
20%
2 Scenarios
3 Scenarios
6 and more
5 Scenarios
4 Scenarios
50%
30%
20% 0%
0%
Direct insurer
6
10%
20%
6 and more
0% 2 Scenarios
0%
10%
3 Scenarios
10%
20%
5 Scenarios
15%15%
20%
60%
40%
30%
2 Scenarios
30%
40%
4 Scenarios
31%38%
40%
50%
80%
Illustration 11: Which perspectives were used / are planned to be used in addition to the regulatory perspective? (N=36) Internal Performance Indicators
33%
Solvency II
11%
31%
Ratings
22%
Other
25% 0%
56%
0%
69%
6%
72%
0%
75%
20%
40%
60%
80%
100%
Yes, is used Yes, use is planned / planned in the future No, it is not used
Illustration 12: What is the SST ratio after three years in the plan scenario? (N=31) 40% 35% 30% 25% 20% 15% 10% 5% 0%
less than 100
101 to 150
151 to 200
201 to 250
251 to 300
301 to 350
351 to 400
more than 400
Direct insurers Reinsurers Health insurers
.
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Illustration 13: Which risk-reducing measures were taken into account in the scenarios? (N=33)
53%
Reinsurance
53% 54%
Adaptation of investment mix and strategy 47%
Adaptation of underwriting requirements
40% 47%
Dividend planning
30% 20%
Financial guarantees of the group
20% 20%
Internal reinsurance
10% 7%
Portfolio sale / Runoff
20%
0%
54% 54%
31% 31% 31%
10%
20%
30%
40%
Direct Insurance Reinsurance Health Insurance
8
80%
7% 8% 10%
Other
.
62%
30%
50%
60%
70%
80%
Illustration 14: When was the ORSA report completed? (N=36) 50%
50%
40%
40%
30%
25%
23%
38%
38%
40%
30%
15%
20%
30%
15%
20%
10%
25% 15%
20%
10%
0%
46%
50%
10%
0%
0%
Nov 17
Dec 17 Direct insurers
Jan 18
Reinsurers
Health insurers
Illustration 15: To whom are the results and findings from the ORSA process regularly communicated (N=36)?
72%
All executive board members
53%
Board of directors
Management functions outside of the board of directors and executive board members
Employees
28%
22%
39%
17%
19%
3% 14%
0%
8%
42%
83%
20%
40%
60%
80%
100%
ORSA-report and further information ORSA-report Selected results No ORSA-specific communication
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Illustration 16: Size of the ORSA report of direct insurers (N=15), reinsurers (N=13) and health insurers (N=10)
20%
More than 75 pages
23%
27%
50 to 75 pages
31%
13%
30 to 50 pages
10%
38% 40%
Less than 30 pages
0%
0%
30%
8%
10% 20% 30% 40% 50% 60%
0%
60%
10% 20% 30% 40% 50% 60%
Direct insurers
Reinsurers
0%
10% 20% 30% 40% 50% 60%
Health insurers
Illustration 17: Size of report compared to the previous year of direct insurers (N=13), reinsurers (N=13) and health insurers (N=10)
0%
0%
>6 pages shorter
46%
"nearly the same"
54%
0%
20%
40%
0%
15%
31%
>20 pages longer
0% 23%
8%
11 - 20 pages
90%
8%
15%
6 - 10 pages
60%
80%
100%
0%
Direct insurers
10
10%
20%
0% 40%
60%
Reinsurers
80%
100%
0%
20%
Health insurers
40%
60%
80%
100%
Illustration 18: How do you assess the following statements regarding the impact of ORSA? (N=36)
Strengthening the company-wide risk view
39%
Development and calculation of scenarios is an added value
17%
Strengthening risk awareness / risk culture
19%
Strengthen cooperation between actuarial and other business sectors
Acceptable effort in relation to the added value
6%
Economic data of FINMA (i.e. assumptions / requirements for interest rate developments or similar) were an added value 0%
6% 6%
25%
33%
17%
28%
19%
19%
50% 19% 40%
60%
6% 6%
22%
50% 20%
6% 6%
33%
33%
11%
6% 3%
22%
44%
14%
3%
23%
47%
19%
Synchronization of strategy and planning processes
22%
51%
11%
Integrated consideration of risk and return
36%
3%
19% 80%
100%
agree rather agree neither nor rather do not agree do not agree
11
Illustration 19: What do you want / expect from politics and / or supervision? (N=34)
40%
23%
Less changes More dialog
23%
Stronger principles orientation
23% 20%
Clearer rules
20%
0%
10%
20%
40% 40% 30% 33% 40% 31%
30%
40%
50%
Direct insurers Reinsurers Health insurers
12
80%
62% 60%
More practice orientation
60%
70%
80%
IMPRINT AUTHORS
CONTACTS
ZHAW School of Management and Law Zentrum für Risk & Insurance Technoparkstrasse 2 Postfach 8401 Winterthur
Angela Zeier Röschmann
Angela Zeier Röschmann Senior Lecturer
Sebastian Barth
[email protected]
Denise Wipf
[email protected]
Digital copy of the study: www.zhaw.ch/zri www.mazars.ch
Research Associate
Johannes Gerd Becker Senior Lecturer Mazars AG Herostrasse 12 8048 Zürich
Denise Wipf Partner, Head of Insurance
Stefan Zumsteg Senior Manager, Head of Actuary
Copyright © 2018 ZHAW School of Management and Law und Mazars AG Mai 2018
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