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IN BRIEF
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The publication of CNSP Resolution No. 471/2024 marks a significant advancement in the field of risk management within the insurance sector. This resolution introduces essential guidelines for the self-assessment of risk, solvency, and capital management in insurance companies, pension entities, and reinsurers. By establishing a comprehensive framework, it aims to enhance the understanding of capital adequacy under various operational scenarios and strengthen the overall resilience of financial institutions against potential risks.
The recent CNSP Resolution No. 471/2024 promulgated on September 25, 2024, introduces essential directives concerning the own risk and solvency assessment (ORSA) for various financial entities. This regulation aims to enhance the methods of risk evaluation and capital management within insurance companies, supplementary pension entities, capitalization firms, and local reinsurers. By establishing a framework for effective self-assessment processes, the resolution seeks to ensure that organizations can adeptly manage their risks and maintain financial stability under both regular and stress scenarios.
Understanding ORSA and Its Importance
The ORSA is a critical component that allows supervised companies to evaluate the adequacy of their capital and liquidity while considering the inherent risks associated with their ongoing and planned operations. This process is necessary for navigating potential uncertainties in the business landscape and is carried out periodically.
According to the resolution, entities are mandated to integrate the findings from their self-assessment into their strategic planning and improvement of the Risk Management Framework (EGR) as well as in their capital management practices.
Risk Self-Assessment Protocols
One of the fundamental protocols introduced by CNSP Resolution No. 471/2024 is the need for a risk self-assessment that aligns with the specific characteristics of the entity, including its size, complexity, risk profile, and business model. The assessment must also focus on significant material risks, such as underwriting, credit, market, operational, liquidity, cyber, and sustainability.
Furthermore, to facilitate effective decision-making, the results of this assessment should influence how companies manage their capital and approach their strategic initiatives.
Framework for Policy and Execution
The resolution outlines that the ORSA policy must complement the existing risk management policies. It needs to clearly define the guidelines, roles, and responsibilities within generalized internal regulations. Each year, an ORSA must be conducted alongside the revision or update of the business plan, inclusive of financial projections and stress test analyses.
Crucially, any significant revisions to the business plan outside the regular cycle require a new ORSA assessment to ensure continuous alignment with current market and risk landscapes.
Documentation and Reporting Requirements
Results from the ORSA need to be meticulously documented in a report that obtains formal approval from both the officer in charge of internal controls and the highest management body of the entity. This report should then be forwarded to the board of directors, the risk committee, and the risk management unit.
In fulfilling their responsibilities, these entities must take into account the contents of the report in their operations and, where necessary, disseminate the findings to those involved in processes regarding risk management, strategic planning, and capital management.
Validation Processes and Oversight
Independent and trained units are required to conduct a comprehensive review of the ORSA process every four years. Should significant changes arise within the operations or risk profile of the supervised entity before this period elapses, there must be a prompt validation of the relevant aspects of the ORSA.
This regulatory body also emphasizes the necessity for supervised entities to maintain documentation that is accessible and comprehensible to regulatory authorities, ensuring compliance with audit requirements.
Capital Management and Contingency Planning
CNSP Resolution No. 471/2024 establishes stringent guidelines for capital management, detailing control levels for adjusted net assets (PLA) and outlining corrective actions in cases of breaches. Entities are required to formulate a formalized contingency plan that will dictate appropriate control levels, including provisions for fluctuating capital requirements.
The contingency plan must be officially registered, approved by senior management, and made known to relevant employees tasked with its implementation, reinforcing the necessity for preparedness in the face of potential financial distress.
Role of Prudential Groups and Compliance Deadlines
For organizations comprised of multiple supervised entities, the resolution necessitates a unified Risk Management Structure integrating the ORSA and capital contingency planning across all supervised companies. The responsibility for executing the ORSA policy, reporting, and monitoring compliance will lie with the group’s lead supervisor.
Moreover, compliance deadlines mandate that entities in the S1 Segment fulfill reverse stress tests by December 31, 2026, alongside other provisions by December 31, 2025. Organizations within Segment S2 must adhere to the new regulations by the same deadline.
In conclusion, CNSP Resolution No. 471/2024 sets a comprehensive roadmap for insurance and financial entities, encouraging rigorous self-assessment of risk and capital management practices. For further insights on how to assess your company’s compliance status, you may visit this resource.
Key Guidelines Overview
| Guideline | Description |
| Risk Self-Assessment | Evaluate risks based on size, complexity, and business model. |
| Policy and Execution | Annual execution aligned with business plans and stress tests. |
| Reporting | Documentation to be approved and disseminated to relevant parties. |
| Validation | Full review every four years; focused validation for significant changes. |
| Capital Management | Define control levels with a formal contingency plan. |
| Prudential Groups | Unified policy covering individual and group entities. |
| Compliance Deadlines | Specific deadlines for different segments and requirements. |
| Supervision | Ensure documentation accessibility for examination by authorities. |
The recent CNSP Resolution No. 471/2024, published on September 25, 2024, brings essential regulations concerning the Own Risk and Solvency Assessment (ORSA) and capital management for various financial entities. This resolution outlines the framework for assessing capital and liquidity adequacy under differing operational conditions, aiming to enhance risk management practices in the insurance and pension sectors.
Overview of ORSA Process
The ORSA process allows supervised companies to evaluate their capital and liquidity needs based on operational risks. Regular assessments ensure each entity can handle both standard and stressed scenarios, ensuring their resilience in unpredictable environments. The results derived from this assessment are vital for developing risk management strategies and aligning with the organization’s risk appetite.
Key Rules Introduced by CNSP Resolution No. 471/2024
This resolution introduces a series of vital regulations designed to guide companies in effective risk management and proactive capital planning.
Risk Self-Assessment
The risk self-assessment mandates that the ORSA should reflect the company’s size, complexity, and risk profile. It entails a thorough examination of significant risks such as underwriting, credit, market, operational, liquidity, cyber, and sustainability risks. The findings must integrate seamlessly into the organization’s strategic planning and Risk Management Framework to enhance capital management.
Policy and Execution Mandates
To ensure consistent implementation, the ORSA policy must complement existing risk management guidelines by defining roles and responsibilities. Annual execution during business plan preparations ensures that economic forecasts and stress tests are accurately integrated. In instances of significant business plan alterations, another ORSA must be conducted to evaluate new risks introduced.
Documentation and Reporting Requirements
Each entity must document the methodologies used and results obtained from the ORSA in a formal report. This report should receive approval from the officer responsible for internal controls and the top management authority, which must also relay the content to the board of directors and risk management committees for comprehensive oversight during risk and capital management activities.
Validation and Periodic Review
The resolution stipulates that every four years, a complete review of the ORSA must occur, conducted by independent units. If significant changes occur within the operational structure, an expedited validation of the ORSA is required to address the impact on risk profiles effectively.
Capital Management Strategies
CNSP Resolution No. 471/2024 emphasizes the establishment of control levels for adjusted net assets and outlines corrective measures when breaches occur. A contingency plan must be documented and regularly reassessed, detailing specific control levels essential for maintaining capital adequacy in stressful scenarios.
Compliance and Supervision Obligations
Entities classified within the S1 Segment must adhere to the new stress testing requirements by December 31, 2026. The regulatory body, SUSEP, retains the authority to issue additional guidelines and mandates, ensuring all related documentation is readily accessible.
For more information on preparing for compliance audits, refer to this resource.
CNSP Resolution No. 471/2024: Key Guidelines
- Risk Self-Assessment: Aligns with entity size, complexity, and business model.
- Policy and Execution: Defines roles within risk management policy.
- Reporting: Documentation required for internal controls approval.
- Validation: Review every four years; more frequent if changes occur.
- Capital Management: Controls and corrective actions for breaches must be in place.
- Prudential Groups: Applies to both individual companies and the group as a whole.
- Compliance Deadlines: Specific deadlines set for different entity segments.
- Supervision: Requires accessible documentation for oversight by SUSEP.
- Economic Projections: Must be included during annual ORSA assessment.
- Contingency Plan: Must define specific levels of control and be approved.
CNSP Resolution No. 471/2024 has established new regulations that govern the Own Risk and Solvency Assessment (ORSA) and capital management procedures for various financial entities, including insurance companies and pension funds. This resolution aims to enhance risk management practices by requiring businesses to assess their capital adequacy and liquidity in both normal and stressed conditions. Below are key guidelines that organizations must consider to comply with this new regulatory framework.
Understanding the ORSA Process
The ORSA process is a crucial tool that helps organizations assess the appropriateness of their capital and liquidity under varied conditions. It is necessary for companies to conduct this assessment regularly and incorporate its findings into strategic planning and risk management frameworks. By evaluating significant material risks—such as underwriting, credit, and operational risk—companies can develop a robust risk profile that aligns with their business model and internal regulations.
Risk Self-Assessment Standards
Organizations are mandated to adopt a risk self-assessment that is commensurate with their size, complexity, and risk profile. This means that entities need to categorize and prioritize their risks effectively. The results from these assessments should be integrated into the strategic planning process to enhance the overall framework for risk management and capital oversight.
Policy and Execution Requirements
The ORSA policy should complement an existing risk management policy, establishing clear guidelines, roles, and responsibilities. The execution of the ORSA must occur at least annually and should coincide with the formulation or update of the business plan. During this process, companies should include economic and financial projections along with stress tests to ensure comprehensive evaluation.
Reporting and Documentation
Documentation is critical in this process. The findings and methodologies from the ORSA must be compiled into a report that is subsequently approved by the internal controls officer and communicated to the highest management bodies within the organization. It is essential that these reports are taken seriously and that relevant personnel in the risk management and strategic planning sectors understand their content to facilitate informed decision-making.
Validation of the ORSA
All organizations must validate their ORSA every four years through an independent review. However, should there be significant changes to the operations, regulatory landscape, or risk profile, it becomes imperative to review particular aspects of the ORSA sooner. This validation process ensures that organizations remain responsive and adapt to evolving risks effectively.
Capital Management Strategies
Capital management must involve establishing control levels for adjusted net assets and implementing corrective measures in cases of breach. A well-defined contingency plan is crucial and should cover specific levels of control, including those required for stress situations. This plan must receive approval from the highest management body and must be disclosed to employees responsible for its implementation.
Adherence to Compliance Deadlines
Compliance deadlines are also an essential aspect of CNSP Resolution No. 471/2024. Entities in the S1 Segment are required to complete reverse stress tests by December 31, 2026, while those in Segment S2 must comply by the same date for the new rules. Entities must prioritize preparedness to meet these deadlines to avoid regulatory repercussions.
FAQ: CNSP Resolution No. 471/2024
What does CNSP Resolution No. 471/2024 establish? It establishes the rules for own risk and solvency assessment (ORSA) and capital management applicable to insurance companies, open supplementary pension entities, capitalization companies, and local reinsurers.
What is the purpose of ORSA? The purpose of ORSA is to periodically assess the suitability of the capital and liquidity of supervised companies under both regular and stressed conditions, while considering the risks of current and planned operations.
How should companies manage their capital according to the resolution? Companies must manage their capital based on the results of their self-assessment and risk appetite, implementing appropriate actions if control levels are breached.
What key aspects must the risk self-assessment include? The risk self-assessment must be compatible with the entity’s size, complexity, risk profile, and business model, considering significant material risks such as underwriting, credit, market, operational, liquidity, cyber, and sustainability.
When should the ORSA be executed? The ORSA should be executed annually, during the formulation or updating of the business plan, which includes economic projections and stress tests.
What is required regarding documentation of the ORSA process? The results, methodologies, and analyses must be documented in a report that is approved by the internal control officer and the highest management body of the company and forwarded to relevant committees.
How often should the validation of the ORSA process take place? A full review of the ORSA process should occur every four years, or sooner if there are significant changes in operations, business plans, or structure that may affect risk profiles.
What does the capital management guideline specify? The capital management guideline establishes control levels and corrective actions for adjusted net assets, requiring a formal contingency plan that is registered and approved by the highest management body.
Are there any compliance deadlines for supervised companies? Yes, S1 Segment entities must comply with reverse stress tests by December 31, 2026, while other provisions apply by December 31, 2025. Companies in Segment S2 have until December 31, 2026.
What role does SUSEP have under this resolution? SUSEP may establish complementary guidelines and ensure that all documentation is accessible, including policies, reports, and contingency plans.
