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So this is the year that will give us the final Solvency II Level 1 and Level 2 texts – or so we are told. To date, firms have spent the best part of their Solvency II preparation efforts on Pillar I. But with two year to go until full implementation, they should be turning their big guns to the remaining two pillars. And perhaps most importantly the firm’s Own Risk and Solvency Assessment – the ORSA. No two ORSAs should be the same. In the introduction to the public consultation on the ORSA Level 3 text guidelines, published late last year, EIOPA stated, “The guidelines focus on what is to be achieved by the ORSA rather than on how it is to be performed.” The ‘O’ in ORSA stands for ‘Own’, the regulator is keen to point out. Each firm must tailor its ORSA to the size and nature of the organisation. Throughout 2011 regulators and industry leaders continued to bang on about the importance of Pillar II, and the centrality of the ORSA to the entire Solvency II project. It should be at the forefront of Solvency II planning for 2012 and as firms start thinking of implementing the ORSA they must be aware of the challenges that lie ahead.Defining your risk appetite
A key component of the ORSA is defining the firm’s risk appetite. This will articulate its attitude and exposure to risk and support delivery of strategic objectives. But this may prove challenging in a number of ways.

Communication is key
Many of the key challenges in implementing the ORSA process cluster on communication, both internally and with external stakeholders. Effective and concise communication of the complexity of the business is crucial for understanding risk and helping senior management act accordingly. “The challenge is to really understand your business and define that complexity,” Paul Barrett, Head of Risk Management Operations at Chartis Europe, explained. “The more you have to bury things in unintelligible, over long and overly complex jargon, the more likely it is you are not conveying the risks in the company and you are failing to engage your senior management and your Board in the choices you are making.”Solvency II in practice
Part of the implementation process includes communicating the effects and changes of Solvency II throughout the organisation, and time must be allowed for individuals to understand the implications of operating in a Solvency II environment.
The Board must adjust to Solvency II
The Board and Non-Executive Directors (NEDs) will also have to adapt to the increasing demands placed on them by Solvency II. “The regulators have been pushing hard on their expectations on NEDs, especially over recent months,” Mr Brenchley said. “So some insurers are expecting to see a different Board model operate in the future with a greater frequency of meetings and NEDs spending more time with the business.”A common language with the regulator

Embedding the Solvency II ORSA process
One of the overarching challenges firms face is embedding the ORSA into the daily business decision making of the firm. It is one of the requirements of the directive that will prove particularly challenging, as these decisions are made by staff in different roles across the organisation.
