ICAAP versus ORSA

ICAAP of SNS Bank
Arno van Eekelen
Senior Consultant
SNS Bank
Global Association of Risk Professionals
June 2014
Table of contents
1. SNS REAAL
2. ICAAP
a) Basic elements and environment
b) ICAAP stages
c) Internal governance
2 | © 2012 Global Association of Risk Professionals. All rights reserved.
SNS REAAL
Balance sheet total of € 125 billion
Dutch state single shareholder as of February 2013
Dutch service provider in the banking and insurance sector
ORSA
ICAAP
3 | © 2012 Global Association of Risk Professionals. All rights reserved.
Basic elements and environment
Current balance sheet
External factors
Financial markets
Customers
Analists/investors
Rating agencies
Supervisor
Regulation
Risk appetite
Business strategy
ICAAP capital
Risk assessment, Risk
policy and risk limits
Economic Capital
Available
capital
Regulatory Capital
4 | © 2012 Global Association of Risk Professionals. All rights reserved.
(reverse) Stress test
ICAAP stages
Preperationfase I
Preperationfase II
Executionfase
Determinationfase
Evaluationfase
Preperationfase I and II
•
ICAAP document, scenario’s, assumptions and guidelines
Executionfase
•
Risk analysis and (reverse) stress test
Determinationfase
•
Determination of capitalisation of SNS Bank (with board & experts)
•
Finalise ICAAP package (document and attachement)
Evaluationfase
•
Internal and external (DNB/SREP) evaluation of ICAAP
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Internal governance
Executive Board
ALCO Bank
Steering Committee
Finance SNS Bank
Regulatory projects
Working group
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ORSA of REAAL Verzekeringen
Gabe Langhout
Senior Risk Consultant
SNS REAAL
Global Association of Risk Professionals
June 2014
7 | © 2012 Global Association of Risk Professionals. All rights reserved.
Table of contents
1. ORSA process
2. ORSA stages
3. ORSA organization
4. ORSA evaluation & development
5. ORSA shifting focus in workshop discussions
6. ORSA (internal) intervention ladder
7. ORSA versus ICAAP
8 | © 2012 Global Association of Risk Professionals. All rights reserved.
ORSA Process
Triggers
Evaluation
Scaling
Risk Appetite
Business Strategy
Risk Identification
& measurement
Appropriateness
Assessment
Risk Analyses
Stress Testing
Draft Report
Workshops
Management Body
Final Report
Supervisory
Review Process
See also: Good Practices ORSA, Verbond van Verzekeraars
https://www.verzekeraars.nl/actueel/nieuwsberichten/Documents/2012/Maart/ORSA%20Good%20practice.pdf
9 | © 2012 Global Association of Risk Professionals. All rights reserved.
ORSA Stages
Preparation
Execution
Decision
Evaluation
ORSA Policy &
Table of contents
ORSA Report
Risk Measurement
& Analyses
(Internal)
Intervention
Ladder
Supervisory
Review @
Evaluation Process
Business Strategy
Appropriateness
Assessment
Calibration of
Risk Appetite
Statement,
Strategy, Limits
(Internal)
Evaluation
Baseline projection
Stress Testing
Management
actions to be taken
Stress scenarios
Draft
ORSA Report
Final
ORSA Report
10 | © 2012 Global Association of Risk Professionals. All rights reserved.
ORSA Organization
Decide
Supervisory Board
Advise
Group Audit
Coordinate
Management Board
Participate
Operational Risk &
Compliancy Committee
ALCO
Steering Committee
ORSA Project Team
Risk
Financial Risk
Non-Financial
Risk
Finance
Control
Finance
Reporting
Balans Sheet
Management
Balans
Optimization
Corporate
Strategy
11 | © 2012 Global Association of Risk Professionals. All rights reserved.
Risk
Reporting
ORSA Evaluation & Development
1e ORSA
2e ORSA
3e ORSA
4e ORSA
Governance




ORSA Policy




Data




Stress Testing




Forward Looking




Subject
12 | © 2012 Global Association of Risk Professionals. All rights reserved.
ORSA Workshops: Shifting Focus in workshop discussions
From Solvency I via Theoretic Solvency Criterion (TSC) to Solvency II
 The “Metric” is still changing unfortunately
From Risk to Risk/Return
 Without Risk no Return, “there is no free lunch”
From Risk Appetite to Efficacy of Management Actions
 The Risk Appetite may be high(er) if many capital strengthening and de-risking options are available
From Stress Scenarios to Recovery Options / Capacity in different types of stressed situations
 Slow, Fast, Idiosyncratic, System wide
From Compliancy to Understanding vulnerabilities & possible mitigating actions
13 | © 2012 Global Association of Risk Professionals. All rights reserved.
ORSA (Internal) Intervention Ladder
Solvency = 150%,
Is that OK?
Internal Intervention Ladder
based on own perception of
Risk and the possibility that the
SCR exceeds Own Funds
Solvency = 150%,
Is (forward looking)
not OK in scenario!
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ORSA (Internal) Intervention Ladder
Appropriateness Assessment:
Risk is underestimated in Pillar
I calculation
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ORSA (Internal) Intervention Ladder
De-risking improves solvency in
the short term
Baseline
Risk Taking improves rate of
return in the long term
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ORSA versus ICAAP: main differences
Subject
ICAAP
ORSA
Horizon
Not prescribed
(>= 1 year)
Forward looking (>= 3 years)
Appropriateness
Assessment Risk
measurement
Optional
Required
Process
Final “chapter” of the
Basel framework
Starting point for the Solvency
Framework
Focus
Capital
Capital & Risk
Compliancy Assessment
Optional
Required
Accounting Method
Mainly: Amortized Cost
Fair Value
Risks covered
in Pillar 1
Credit-, Market- &
Operational Risk
Market- (single risks), Insurance(single risks), Counterparty
Default-, Operational Risk
17 | © 2012 Global Association of Risk Professionals. All rights reserved.
ICAAP versus ORSA
Jeroen van Duren
Sr. manager Financiën & GRC Centraal
Menzis
Global Association of Risk Professionals
June 2014
18 | © 2012 Global Association of Risk Professionals. All rights reserved.
Table of contents
•
Introduction Menzis
•
Risk Framework Menzis
•
ORSA Menzis
•
Lessons learned
19 | © 2012 Global Association of Risk Professionals. All rights reserved.
Introduction Menzis
Health Insurer (Co-op)
Drivers:
Price, volume and Quality
> 2,1 million people insured
1704 fte medewerkers
€ 5,5 billion GWP
(incl. AnderZorg en Azivo)
Three “Zorgkantoren”:
Arnhem, Groningen, Twente
€ 3,5 billion GWP
20 | © 2012 Global Association of Risk Professionals. All rights reserved.
‘Samen verzekeren wij kwalitatief
goede zorg om de leefkracht van ieder
menz te versterken.’
menselijk
voor elkaar
daadkrachtig
Table of contents
•
Introduction Menzis
•
Risk Framework Menzis
•
ORSA Menzis
•
Lessons learned
21 | © 2012 Global Association of Risk Professionals. All rights reserved.
Risk and Capital
ORSA: linking Risk and
Capital management:
What is the required level of Solvency to realise our strategic goals and
to absorb future (unknown) risks over a three to five years horizon?
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Strategie
SRA
Risicobereidheid
Specifieke
risico’s
Hoeveel risico
lopen we?
Toleranties
Hoeveel risico zijn
we bereid te lopen?
Risicoprofiel
“Management
actions”
Toleranties
Wat is de impact
van risico’s op het
kapitaal op lange
termijn?
ORSA
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Aanpasing/herijking
strategie
23
Missie Menzis
Planning and
Control cycle
Strategie Menzis
Risicoplanning
Risicoplanning
Verantwoording
en stuurinformatie
Doelen stellen
24 | © 2012 Global Association of Risk Professionals. All rights reserved.
Verantwoording
en stuurinformatie
Doelen stellen
Verantwoording
en stuurinformatie
Risico’s op
tactisch niveau
Doelstellingen op
tactisch niveau
Doelstellingen op
operationeel niveau
Verantwoording
en stuurinformatie
Risico’s op
strategisch niveau
Doelstellingen op
strategisch niveau
Risico’s op
operationeel niveau
Table of contents
•
Introduction Menzis
•
Risk Framework Menzis
•
ORSA Menzis
•
Lessons learned
25 | © 2012 Global Association of Risk Professionals. All rights reserved.
From risks to scenarios
Uitkomst SRA
14
25 11
13 29
27
20 2
4 16 19 18
3 21 5 28 8
26
9
6
Meerjaren
strategie
16
26
21
20
8
19
11
27
13
14
2
3
4
5
6
28
25
9
29
29
Prudent
Scenario
Beleggingen
Scenario
Beheerskosten
Scenario
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AV
Scenario
Verzekerden
Scenario
18
Budgetresultaat
Scenario
AWBZ
Scenario
From scenarios to capital
Strategische Risico’s
Scenario’s
Variabelen
Financiële projecties
Kapitaalberekeningen
Hoog
Kapitaal
Premie
1
1
T+2
T+3
T+4
T+5
Schade
2
Scenario 1
3
4
T+1
7
2
Balans
T+1 T+2
T+3
T+4
Verlies en Winst
T+1 T+2 T+3
Beleggingen
T+5
T+4
Ontwikkeling van de
kapitaalsvereiste
T+5
Ontwikkeling van
het eigen vermogen
Verzekerden
Bedrijfskosten
5
Aanzienlijk
Tijd
6
7
Kapitaal
Premie
7
5
Beperk
Scenario 2
T+1
T+2
T+3
T+4
T+5
Balans
T+1 T+2
T+3
T+4
Verlies en Winst
T+1 T+2 T+3
Schade
Ontwikkeling van
het eigen vermogen
T+5
T+4
Ontwikkeling van de
kapitaalsvereiste
T+5
Beleggingen
Verzekerden
9
Bedrijfskosten
9
8
Tijd
Laag
Kapitaal
5
8
T+2
T+3
T+4
T+5
Schade
Scenario 3
10
Premie
T+1
Beleggingen
Balans
T+1 T+2
T+3
T+4
Verlies en Winst
T+1 T+2 T+3
Ontwikkeling van
het eigen vermogen
T+5
T+4
T+5
Ontwikkeling van de
kapitaalsvereiste
Verzekerden
Bedrijfskosten
Tijd
27 | © 2012 Global Association of Risk Professionals. All rights reserved.
Required & desired solvency
Additional
•
Strategic choices
•
•
Historic risk
Worst Case –strategic scenario
buffer
Internal
buffer
Regulatory Required Minimum
SCR
28 | © 2012 Global Association of Risk Professionals. All rights reserved.
•
•
•
•
•
Market risk
Underwriting risk
Counterparty risk
Liquidity risk
Operational risk
Expertteam
After sales service
29 | © 2012 Global Association of Risk Professionals. All rights reserved.
Actuarial dept
Commerce
Business Control
Corporate
office
Accounting
Health management
Board of
Directors
Financial
Administration
Board
Financial
Control &
Reporting
Audit
Advisory Board
Menzis ORSA
Solvency II
Program
Table of contents
•
Introduction Menzis
•
Risk Framework Menzis
•
ORSA Menzis
•
Lessons learned
30 | © 2012 Global Association of Risk Professionals. All rights reserved.
Lessons Learned (summary)
• Integral Risk Framework (consistent, related)
• Control & Risk Management (integral steering)
• Set limits (risk tolerance)
• Required (external) versus eligible solvency (intern)
• Entire organisation involved (commitment, widespread support)
• Key input for main decision making (e.g. premium setting)
31 | © 2012 Global Association of Risk Professionals. All rights reserved.
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