ORSA is a key component of Solvency Assessment and Management (SAM): a risk-based regulatory regime for the prudential regulation of long-term and short-term insurers and reinsurers in South Africa.
The South African (re)insurance companies was required to submit a 2015 mock ORSA report to the Financial Services Board (FSB). Insurance companies (groups) will again be required to submit an ORSA report by latest 30 September 2016 (or 30 November 2016, if approval is granted).
The full set of ORSA requirements and guidelines are set out in Position Paper (PP) 107 v6. Compliance with the full set of ORSA principles and guidelines will be required when the SAM framework is implemented.
This is currently scheduled for 1 January 2017.
Insurers were encouraged to make progress with a subset of these requirements in 2015, and are urged to continue to progress towards full compliance with the additional requirements in 2016. Further requirements for the ‘Updated Mock ORSA’ were released on 31 March 2016. While not unexpected, the requirements are significant in terms of the time and effort involved. The bar expected by the FSB is a lot higher than last year and will again be set higher next year as highlighted in the diagram to the right.
For many insurers, the 2015 mock ORSA cycle would have been the first or second cycle. For the largest insurance groups in South Africa, 2015 was the third or fourth iteration of the ORSA. Our view is that most of the largest groups already have well developed ORSAs. However, on average the industry’s ORSAs are still being developed.
KPMG in South Africa has analysed over 15 mock ORSA reports in the market, covering both life and non-life insurance entities and groups of various size and complexity. Though this represents only a small portion of the insurance market in South Africa, we believe that it is across a representative sample of the South African market and therefore the conclusions drawn should be reasonably representative of the industry on average.
Overall, our view is that on average South African companies are LAGGING in the areas of:
SAM is principles based, so a firm needs to consider how to meet compliance in a way that best worksfor the firm to achieve business value.
Our view is that for most companies, the focus of the first mock ORSAreport was to design and implement underlying processes and produce documentation to comply with the applicable requirements. They should be used as a lessons learnt cycle by individual companies to improve future cycles. Particular attention shouldbe given with respect to ensuring ownership, engagement and challenge from Senior Management and the Board so that they clearly understand and can affect their obligations once SAM is live.