The new national and international regulation require insurance companies to carry out periodic own risk and solvency assessments (ORSA). In Mexico, this assessment includes the Dynamic Solvency Test, whose purpose is to assess the capacity of institutions to satisfy the solvency capital requirement in various prospective scenarios.
ORSA is an extensive exercise that requires multiple analyzes by personnel specialized in risk management and Solvency II, who should have strong knowledge of the operations of insurance and surety institutions. Two of the most important aspects of the ORSA that Numeravi´s consultants perform for insurance and surety institutions are:
8.1 Evaluate whether the standard formula to calculate the SCR is adequate to estimate the probable maximum losses that the institution may suffer due to the risks to which it is exposed.
8.2 Assess their capacity to maintain their solvency and satisfy the SCR in different stress scenarios. The dynamic solvency test is carried out within this evaluation. The objective of Numeravi´s advice is to transform the Dynamic Solvency Test into an instrument to optimize the use of the capital of insurance and surety institutions, estimating their real solvency level and their own funds needs based on their business goals and risk exposure. Through Numeravi’s consulting services, the following specific objectives will be achieved for each institution:
- To identify which variables (line of insurance or types of risk) generate the greatest exposure to losses and, therefore, increase the SCR. That is, knowing in a disaggregated way, what generates the solvency capital requirement.
- Identify specific classes of risk that may affect the institution’s satisfactory financial condition.
- Propose actions that reduce exposure to those risks.
- Design actions that mitigate adverse effects if such risks are materialize.
- Efficiently comply with this regulatory requirement.
- In the case of surety institutions, evaluate their solvency considering both their insurance and bonding operations.
In Numeravi we have the technology, knowledge and the necessary experience to evaluate how appropriate the SCR standard formula is for each institution and develop scenarios appropriate to their specific business nature to provide useful information to optimize their capital.