Guidance Note on Licensed Insurers' Own Solvency Assessment

Summary

This guidance note from the Guernsey Financial Services Commission (GFSC) explains how licensed insurers should perform the Own Risk and Solvency Assessment (ORSA) required under The Insurance Business (Solvency) Rules, 2021. It sets out who must perform a full ORSA versus a narrower Own Solvency Capital Assessment (OSCA) only, and describes methodology, format and reporting expectations.

• Full exemption from ORSA: Category 6 licensees, dormant insurers with no outstanding liabilities, insurers otherwise limited to OSCA whose board considers the PCR sufficient (with documented rationale), and any insurer notified in writing by the Commission.
• OSCA only (limited assessment): Category 1 life insurers with MCR below £350,000, Category 2 insurers with MCR below £7,500,000, Category 3 insurers with MCR below £1,500,000, Category 4 insurers with MCR below £7,000,000, Category 5 insurers, and Protected Cell Companies, unless otherwise notified by the Commission.
• OSCA methodology: Insurers should consider factors such as adverse claims development, IBNR uncertainty, investment and reinsurance risks, diversification, and other risks like operational, liquidity, concentration, catastrophe and regulatory risk when calculating their own solvency capital assessment.
• Full ORSA requirements: Insurers required to perform a full ORSA must additionally link risk management to financial resources, use forward-looking quantitative techniques (stress and reverse stress testing, scenario analysis), and maintain a contingency plan covering going and gone concern situations.
• Suitability of capital: The PCR must be covered by regulatory capital resources; additional capital may include instruments like subordinated loans, but intangible assets such as goodwill are generally not acceptable.
• Supervisory follow up: The Commission may request clarification of assumptions or methodology, or require the ORSA to be reconsidered and resubmitted if the rationale is inadequate; action to raise capital is generally not required if capital remains above the PCR.

An Appendix provides a non-exhaustive list of items expected to be addressed in the OSCA document, including an executive summary, data and assumptions used, uncertainty in claims provisions, diversification, and various risk categories, with the level of detail scaled to the size, nature and complexity of the licensee.

Key obligations

• Licensed insurers within scope must perform an ORSA (or OSCA only, if qualifying) covering own solvency capital assessment, risk management assessment, and assessment of capital adequacy for future requirements.
• Insurers performing a full ORSA must make the ORSA document available to the Commission upon request within 6 months of the assessment date.
• All insurers required to perform an ORSA (including OSCA only) must provide the ORSA document to the Commission at least annually together with the insurer's annual return.
• An ORSA must be submitted with all new licence applications.
• Where there has been a material business plan change affecting solvency, the insurer must provide a revised ORSA at the time the change is notified to the Commission.
• Insurers in run off must update the ORSA to exclude no-longer-applicable risks and thereafter review it annually.
• All ORSAs/OSCAs must be accompanied by supporting rationale for the calculation.
• Insurers relying on the board-approved PCR-sufficiency exemption from full ORSA must clearly document that decision and its supporting rationale, either with the annual return or in separate correspondence.
• As part of the full ORSA, insurers must maintain a contingency plan and procedures for going and gone concern situations, identifying countervailing measures and off-setting actions.

Applies to

licensed insurers, Category 1 licensed insurers (life business), Category 2 licensed insurers, Category 3 licensed insurers, Category 4 licensed insurers, Category 5 licensed insurers, Category 6 licensees, Protected Cell Companies

Deadlines

• within 6 months of the assessment date: ORSA document (for insurers not limited to OSCA only) must be available upon request of the Commission within this period.
• at least annually with the insurer's annual return: All insurers required to perform an ORSA (including OSCA only) must provide the ORSA document to the Commission.
• at the time the change is notified to the Commission: A revised ORSA must be provided following a material business plan change with an impact on solvency.
• with all new applications: An ORSA must be submitted alongside new licence applications.
• annually: Insurers in run off must review their updated ORSA annually to account for material developments.