With ORSA Regulatory Requirements Approaching, Property & Casualty Insurers See Its Value to Their Business

  With ORSA Regulatory Requirements Approaching, Property & Casualty Insurers
  See Its Value to Their Business

Towers Watson survey assesses insurers’ preparedness for the ORSA and its
impact

Business Wire

NEW YORK -- January 22, 2013

Property & casualty (P&C) insurers are forming clear opinions about how
pending Own Risk and Solvency Assessment (ORSA) regulatory requirements will
impact their current financial planning, enterprise risk management (ERM) and
capital analysis approaches. In a recent survey by global professional
services company Towers Watson (NYSE, NASDAQ: TW), chief financial officers
(CFOs) at leading P&C insurers addressed their companies’ eligibility and
preparedness for the ORSA process and the potential impact the ORSA may have.

To no one’s surprise, many P&C insurers are beginning to implement ORSA
processes in advance of the requirements that will become effective in 2015.
Half of the insurers who participated in the survey indicated they view the
ORSA as a strategic exercise that will be fundamentally linked to their
strategic decisions, and will support their company’s long-term vision and
capital planning. Another 29% see the ORSA as a tactical exercise that will
influence some strategic decisions. The remainder see the ORSA as
compliance-driven, having undetermined, or little to no, strategic value.

When it comes to the ORSA’s impact on ERM, CFOs see ample room for
improvement. Sixty percent said they are highly or moderately certain that the
ORSA process will improve the link between their company’s ERM efforts and its
capital and strategic planning. This is significant, considering only 22%
reported that their company’s current ERM is tightly linked to capital and
strategic planning.

“Our survey findings suggest that the ORSA process holds a lot of value and
promise for insurers. They view it as a relatively beneficial regulatory
requirement,” said Bruce Fell, managing director for Risk Consulting and
Software at Towers Watson. “Insurers acknowledged that the ORSA provides
senior management with a better understanding of their organization’s total
risk, and that understanding should improve strategic planning capabilities.”

Planning Tool

While less than half (45%) of participants reported they either will or may
have to provide U.S. regulators with an ORSA, paradoxically, nearly
three-quarters (73%) are already developing or plan to develop an ORSA
process. Only 27% said they do not have an ORSA process in place and do not
plan on developing one.

“Many more participants are developing, or plan to develop, an ORSA process
than will be required to provide one to U.S. regulators,” Fell said. “This
indicates that either companies expect the requirements to eventually be
broadened to a larger percentage of companies, or they are beginning to see
potential benefits in the process of improving evaluation of their own risk
and solvency position whether or not the regulation will apply.”

Interestingly, only 28% of the CFOs indicated they will develop an ORSA for a
non-U.S. jurisdiction, and of that group, no participants plan to submit the
same ORSA to U.S. regulators. A sizable portion (60%) with an existing ORSA
revealed their current ORSA will not meet U.S. requirements, and another 20%
plan to submit an ORSA for a subset of companies in their groups that fall
under the jurisdiction of U.S. regulators.

More Work Needed

The survey also showed that companies still have some way to go before
completing their ORSA requirements and before their workforce has a thorough
understanding of the ORSA. Two-thirds of the respondents said their companies
are only in the planning stages of ORSA development. One possible explanation
CFOs offered is the extent of resources needed to implement an ORSA. Over half
claimed that enterprise resource challenges are significant barriers in
designing and executing their ORSA process.

They also said additional education about the ORSA framework is needed to
inform those across the enterprise who will be affected by it. Forty-five
percent of the CFOs are unsure whether key personnel have a thorough
understanding of the ORSA or the relevant expertise in this area, and
two-thirds (66%) appear less certain that their directors and senior
management  have a thorough understanding.

“For many, an effective ORSA is as much a shift in corporate culture, which is
a more prolonged process, as it is a regulatory requirement,” said Fell. “But
those who embrace the change and make that cultural shift successfully can
choose to use the new regulation to evaluate their business strategy through a
risk-focused lens. These insurers will be well positioned to reap the benefits
of an improved risk-adjusted return and have a clearer understanding of the
risk/reward framework within which they operate.”

About the Survey

CFOs from P&C insurance companies participated in Towers Watson’s fourth North
American Property & Casualty Insurance CFO Survey. Survey respondents
represent a variety of business types and ownership structures, and local and
regional carriers, along with national carriers and multinationals. They
represent a cross section of companies of all sizes and a variety of
distribution systems.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services
company that helps organizations improve performance through effective people,
risk and financial management. The company offers solutions in the areas of
benefits, talent management, rewards, and risk and capital management. Towers
Watson has 14,000 associates around the world and is located on the web at
towerswatson.com.

Contact:

Towers Watson
Media Contacts:
Josh Wozman, +1 703-258-7670
josh.wozman@towerswatson.com
or
Binoli Savani, +1 703-258-7648
binoli.savani@towerswatson.com