ORSA, Internal model & economic capital

i just want to check that I'm making the right links between these 3:

• Economic capital has no specific rules attached so the company will decide what confidence level to use in the calculation, what risks to include and whether to include NB.
  • Results could be similar to those of the internal model (if used by the company) if a 1-in-200 year confidence is used, premiums aren't included beyond the contract boundaries, and all risks required by the SCR are included in the assessment
• The ORSA (solvency assessment) is also a form of economic capital except there are some prescribed parameters (projections over the business planning horizon, all risks must be assessed, NB must be included)

So is this saying that, if a company uses an internal model, it can actually use that same model to calculate the ORSA and its economic capital requirements? Or would a company not do a separate economic capital requirement assessment, as the ORSA basically covers this?

 

Great! Thanks again, Lindsay

 

1. INTERNAL MODEL question

If a company fails to receive an IMAP approval from PRA, can/ would the company re-apply? Or is it just a one off chance?

2. ORSA question

I came across a solution in Mock B exam Q1 part (v), where the solution covers a wide range of functions for Pillar II.
Based on the wording of the core reading on p. 8 SII Pillar 2 section of ch. 11, I thought there are only 4 governance functions, namely:

• Actuarial function
• Risk management function
• Internal audit function
  
• Compliance function

Are there more functions as per ORSA requirements but we are just not expected to be able to cover all of them as it is not in the core reading?

 

Hi, I have another question on the Standard Formula. Would liquidity risk be somehow captured by SF in Pillar 1 SII or would it be fall under Pillar 2 in ORSA?

 

As far as I understand, it's captured within spread risk in the market risk module of the SCR

 

Yes! that's right! Thank you!