What is the primary requirement of the ORSA under Solvency II?

The primary requirement of the Own Risk and Solvency Assessment (ORSA) under Solvency II is to assess and manage risks while ensuring financial capital adequacy. The ORSA framework is designed to ensure that insurance firms have a comprehensive understanding of their risk profile and the capital necessary to cover those risks both now and in the future. This involves not only the evaluation of current risks but also the development of strategies to manage those risks effectively, which is crucial for maintaining solvency and financial stability.

In the context of Solvency II, the ORSA requires firms to integrate their risk management and capital planning processes. It emphasizes the importance of forward-looking assessments and encourages insurers to take a proactive approach in understanding potential future risks, rather than merely reacting to current conditions. This holistic approach to risk management is fundamental for insurance businesses to operate sustainably and remain solvent in a dynamic market environment.

The focus on financial capital adequacy is essential as it ensures that the firm has enough resources to meet its obligations to policyholders under a range of scenarios, further supporting overall financial soundness and regulatory compliance.