Willis

London, UK, February 21, 2012 – Willis Re, the reinsurance arm of Willis Group Holdings (NYSE:WSH), the global insurance broker, have released a report discussing the function and contents of the Own Risk and Solvency Assessment (ORSA) under Solvency II. Sometimes described by its advocates as “the beating heart of Solvency II”, the ORSA is one of the most significant innovations introduced by the new European regulatory regime, but even after the latest guidelines issued by the European Insurance and Occupational Pensions Authority (EIOPA) in December, it apparently remains a challenge for many insurers of all sizes.

The Willis Re report, entitled ORSA Under Solvency II Report: “What Is It, and Why Is It Good For You?” shows that each ORSA requirement can be directly traced to the text of the Solvency II Directive. Foremost among the Directive principles is the insurer’s responsibility for managing its risk exposures and ensuring that its solvency requirements are continuously met. The report explains that the lack of detailed guidance many market participants find difficult is actually a consequence of the approach to insurance supervision that inspired European regulators.

Presenting the new report, David Simmons, Managing Director, Analytics and Head of International Enterprise Risk Management (ERM) for Willis Re, said: “With the ORSA, the burden of responsibility for ensuring insurers’ solvency is shifted from regulators to the insurers themselves. Risks have become too complicated to be effectively controlled through a set of rules dictated by regulators. Under Solvency II, therefore, insurers will have to keep a clear focus on the regulation’s objectives and use them to guide their decisions.”

While the new supervisory approach may at first appear confusing, it also offers great opportunities, Simmons noted. “ERM has become key for an insurer’s profitability and credit ratings. An effective ORSA will allow the insurer to allocate scarce risk capital efficiently and provide a showcase for the insurer’s ERM capabilities. In the long run, the costs of the ORSA implementation are going to be more than offset by higher profits.”

Solvency II capital requirements are calibrated to ensure an insurer’s solvency over a one year horizon with 99.5% confidence. The ORSA extends Pillar I view of capital adequacy along two dimensions:

• Risk, by requiring insurers to consider liquidity and other risk that are difficult to quantify, and to verify the applicability of the standard formula to their actual risk profile; and
Time, by requiring insurers to project their solvency position over a longer time horizon than one year and plan in advance how to meet their overall capital and funding needs.

How to conduct the ORSA in practice is left to the insurer, based on the nature, scale and complexity of its risks. The Willis Re report describes a modular structure for the ORSA that covers, in turn, the insurer’s current risk profile, its prospective solvency position, and the ORSA validation and ERM assessment.

Giorgio Brida, Rating Agency & Regulatory Analyst at Willis Analytics, commented: “While this modular structure is not prescribed by EIOPA guidelines, it is consistent with Solvency II principles and offers a flexible, practical framework that can be applied to most insurers’ risk profiles. In addition, it provides a natural template for the ORSA report which insurers will have to periodically generate for their supervisors.”

About Willis Re

One of the world's leading reinsurance brokers, Willis Re is known for its world-class Analytics capabilities, which it combines with its Capital Markets and Reinsurance expertise in a seamless, integrated offering that helps clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that help clients make better reinsurance decisions, access worldwide capital markets and negotiate optimum terms. For more information, visit www.willisre.com.

About Willis

Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world. Additional information on Willis may be found at www.willis.com.