ORSA (Own Risk and Solvency Assessment)

Article 45 of Directive 2009/138/EC: every European insurer runs its own risk and solvency assessment, the ORSA, at least once a year under EIOPA's guidelines and without delay after any significant change in its risk profile, and sends the report to its supervisor. This is where an insurer says, in its own terms, how much capital it needs and why. It is the forward-looking part of Solvency II. The SCR is a standardized calculation at a point in time; ORSA asks the insurer to look at all of its risks over several years, in light of its strategy, including the ones the standard formula captures poorly. It is owned by senior management and the board, which approves the report, not by the actuaries alone. Most of the work is in stress tests and adverse scenarios: economic, market and claims shocks, and ones no formula anticipates. That is where an insurer with cyber exposure models a systemic accumulation scenario to see whether its balance sheet holds. The 2024 review adds sustainability risks and climate scenarios. ORSA leaves room for judgment where the standard formula stops. It is only as good as the scenarios chosen, and an ORSA built on comfortable scenarios proves nothing.