Own Risk and Solvency Assessment (ORSA)

A regulator's capital formula is like a one-size health check given to everyone at the door of a clinic — useful, but it cannot know your family history, the marathon you are about to run, or the unusual medicine you take. The Own Risk and Solvency Assessment is the insurer doing its own thorough check-up: stepping back from the standard rule to ask, in its own words and for its own circumstances, 'given everything we know about our business and our plans, are we really going to stay solvent?'

The ORSA is the firm's own forward-looking assessment of all its material risks and of whether its capital is and will remain adequate over its full business-planning horizon (several years, not just the next twelve months). Unlike the SCR, it is not a single regulator-defined number; it is a process and a report the firm owns. It typically includes the firm's own view of its risk profile (which may differ from the standard formula's assumptions), multi-year projections of capital under its business plan, stress and reverse-stress tests of what could break it, and an explicit link back to the board's risk appetite. It must be embedded in decision-making and reported to the supervisor at least annually and after any major change.

The ORSA matters because it is the bridge that turns ERM and the risk-appetite framework into a living, board-owned conclusion about survival, and it is the part of Solvency II's Pillar 2 that most forces management to think rather than just to compute. The common misconception is that the ORSA is a document to be produced for the regulator once a year. Its whole intent is the reverse: it is the firm's own honest answer to 'can we keep our promises?', and a tidy report that nobody used to make a decision has missed the point entirely.