ORSA
Also known as: Own Risk and Solvency Assessment
Insurance-sector self-assessment of all material risks against capital and solvency.
ORSA is the regulatory requirement that insurance groups perform an internal self-assessment of all material and emerging risks and the capital required to support them under both base and stressed conditions, and report the assessment to their supervisor. Originating in the EU's Solvency II Directive (2009/138/EC), ORSA is part of the regime's Pillar 2 and was fully effective from 1 January 2016. The US National Association of Insurance Commissioners adopted a parallel ORSA Model Act in 2012 with state implementation generally beginning in 2015, requiring an annual ORSA Summary Report from insurers above premium thresholds. ORSA is principles-based: structure, methodology, and granularity reflect each insurer's risk profile, business model, and risk management framework rather than a prescribed template.
Core components
- Description of the risk management framework
- Quantitative and qualitative assessment of risk exposure under base and stress conditions
- Group risk capital and prospective solvency assessment
- Use test (ORSA must inform decision-making, not be a parallel exercise)
- Annual ORSA Summary Report to supervisor
Primary use case
Insurance-sector ERM and capital adequacy self-assessment; supervisory tool for understanding insurer risk profile and management quality; basis for supervisory dialogue.
Common criticisms
- Substantial documentation burden, particularly for smaller insurers
- insurer-specific judgments make peer comparison difficult and supervisory benchmarking limited
- quality varies widely
- less prescriptive scenarios than banking stress tests reduce comparability
- 'use test' is hard to verify in practice and can become documentation theater.
Lineage
- Siblings
- Basel III, CCAR, ISO 31000, COSO ERM