• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

ORSA, Internal model & economic capital

M

Mbotha

Member
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?
 
Yes to all! (although might need to adapt the SCR internal model slightly so that it allows for everything that the ORSA solvency projection needs)
 
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?
 
Last edited by a moderator:
Viki2010 said:
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?
Click to expand...

The company can apply again, using feedback from the PRA in order to improve the application.

Viki2010 said:
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?
Click to expand...

The Mock question is asking about all the departments ("functions and business areas") of a life insurance company that would be involved in the process of determining the ORSA. This is a different question from asking what are the four mandatory governance functions that have to be set up under Solvency II. Life insurance companies will have more functions and business areas than just these four.
 
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
 
You must log in or register to reply here.
Back
Top