Adeel Mushtaq, Senior Manager within KPMG’s Assurance and Advisory Services in Qatar and Bahrain tells ta’ameen Qatar about the latest regulatory developments in Qatar’s insurance sector and suggests why insurers in Qatar should consider embedding ORSA as a strategic tool. 

The Qatar insurance sector is vibrant, growing and highly competitive. Looking ahead to 2015 and onwards, the industry will face big regulatory changes as Qatar Central Bank (QCB) prepares to introduce its regulatory framework for insurers operating in the State of Qatar. It is widely expected that these new regulations will be based on the revised Insurance Core Principles (ICPs) as issued by the International Association Insurance Supervisors (IAIS). 

The amendments to the Qatar Financial Centre Regulatory Authority (QFCRA) PINS rulebook, based on ICPs, comes into effect from 1 January 2015. The insurance sector in Qatar is taking steps to enhance insurance regulation with view to developing a global financial centre and providing international standard infrastructure, regulatory environment and necessary support for innovative solutions. However, for most insurers, the current wave of change will present challenges to their business models, cost structures and how they communicate with stakeholders. 

 Adapting to the regulatory reform: 

Insurance sector executives should plan ahead to achieve sustainable growth in this fast changing environment coupled with equally fast evolving regulatory and governance landscape. Regulatory change coupled with the upcoming Phase II of IFRS 4 Insurance Contract project, is not only complex, but also has broad implications on underlying system changes which insurers operating in Qatar may not be prepared for. Insurance firms that are based in Qatar and wish to stay ahead need to strategize the change and build tools and capabilities to cut through the complexity for the implementation of the new regulations. 

What is an ORSA? 

The Own Risk Self-Assessment (ORSA) is a new policy tool required by the IAIS. It is also a key feature of many global regulatory frameworks such as Solvency II in Europe. QFCRA has introduced ORSA as a requirement for all insurers in Qatar as part of the new PINS Rulebook. Needless to say, ORSA would have an impact on all Qatar based insurance companies at a variety of levels as it is not just a compliance requirement, but is a highly effective strategic tool. 

ORSA is defined by the QFCRA rulebook as a detailed forward-looking examination of the adequacy of an insurer’s risk management policies, procedures and controls and the insurer’s present and future solvency positions. 

 Adeel Mushtaq, Senior Manager, KPMG’s Assurance and Advisory Services in Qatar 

 Benefits of ORSA: 

Following are some of the benefits of implementing ORSA: 

✑ A forward-looking approach will help insurers reduce volatility and uncover opportunities. 

✑ Provides a sound concept, and one that will ultimately help to ensure the future success of a business and benefit all stakeholders. 

✑ Strengthens the robustness of oversight functions within firms and can provide an additional layer of expertise and assurance to assist insurers in avoiding some of the crisis experiences. 

✑ Identifies unwanted negative or unwanted risk exposures. 

✑ Contingency plans can limit losses when unavoidable risk events occur. 

✑ Provides commonality across emerging global regulatory initiatives. 

How should insurers in Qatar approach ORSA? 

The current operating environment is characterised by low global growth, flat yield curves and high expectations from external stakeholders. 

Considerable pressure is therefore being applied to the management of insurers to grow and write profitable business, achieve an increasing return on capital while at the same time, maintaining robust risk and capital management frameworks and reducing operating expenses. There are some fundamental principles that insurers should consider to get the most out of ORSA: 

✑ Assess the overall solvency needs, including taking a view of the risk profile as a business strategy tool and not a mechanical calculation to meet regulatory requirements. 

✑ Understand business risks, risk appetite and limits and ensure all material risks are noted in the assessment including strategy and capital considerations. 

✑ Proactively consider the future evolution of the risk profile to prepare for what lies ahead. 

✑ Take a forward-looking view of the firm’s capital needs and the basis for regulatory capital to cope with such outcomes. 

✑ Take action to address the identified risks and short comings i.e. how the insurer proposes to manage all the material risks it faces through capital buffers or other mitigating actions. 

✑ Develop a defined documentation process to evidence the adopted approach and responsibilities to keep ORSA current, including formalising the role of chief risk officers. 

✑ Make ORSA a factor in the capital add-on decision – it should not act as a “one-off ” exercise. 

✑ Assess the adequacy of capital resources and any additional capital sources needed. 

✑ Estimate a range of outcomes and costs using techniques such as stress and scenario testing and reverse stress testing. 

✑ Understand the elements of risk management that are value-adding and are capable of providing the insights to optimise commercial management of risk and capital going forward. 

✑ Assess the ability to maintain and fund operations of critical functions and the resultant implications to conserve or restore the firm’s own funds. 

✑ Examine the sufficiency of funding arrangements and ensure adequate access to contingency funding sources at appropriate cost including in extreme stress scenarios. 

Most insurers have processes, people and systems in place to manage risk and capital in their businesses and would like to build ORSA onto their existing risk and capital management frameworks. The ORSA, coupled with other regulatory requirements, is undoubtedly challenging and the cost of developing an ORSA is likely to be high. Therefore, it is recommended that efforts should focus on developing better ORSA rather than low-cost alternatives, nevertheless considering how the existing frameworks can be enhanced to link strategic management. The ultimate aim should be in creating competitive advantage by identifying, managing or avoiding unwanted risks, increasing capital efficiency and identifying potential opportunities for growth. 

Take a forward-looking view of the firm’s capital needs and the basis for regulatory capital to cope with such outcomes.