FSRA’s webinar on Own Risk and Solvency Assessment (ORSA) (December 10, 2024)

Note: the text is automatically generated and has not been reviewed for accuracy.

0:05

Hello everyone, and welcome to today's webinar, Own Risk and Solvency Assessment Guidance.

0:12

And before we get started, I'd like to go over just a couple of items so that you know how to participate in today's event.

0:19

You've joined the presentation listening through your computer speaker system by default.

0:24

And to make any adjustments to your audio, such as selecting different speakers, click the settings wheel at the top right of the GoToWebinar window.

0:32

And you can also enable closed captioning for this presentation, if you'd like, by clicking the CC icon located towards the bottom right of the window.

0:42

And then finally, throughout the presentation, you can submit any questions you have to our speakers.

0:47

Just type those into the questions panel and to access this panel, click the questions icon at the top right.

0:53

And we will address your questions during the Q &A portion at the end.

0:57

And with that, I'd like to introduce your moderator, David Maxwell, Head of Regulation and Strategic Initiatives at FISRA.

1:07

Thank you very much and thank you everyone for joining us this morning to talk about this piece of proposed guidance.

1:14

I think it's great that the sector engages with us in this way.

1:18

It's a really important way for us to solicit feedback as we go through the consultation on this guidance.

1:25

It's not the only way that we solicit your feedback.

1:27

There is written feedback, of course, accepted as part of the broader consultation process.

1:32

But we do very much appreciate you taking the time for us this morning.

1:36

You'll see the agenda here of what it is that we're hoping to go through.

1:39

I wanted to touch on just a couple of housekeeping issues first.

1:44

And first and foremost, I wanted to assure you that both these materials and the recording of this session will be made available following the webinar.

1:53

So you don't need to worry about taking screen captures.

1:58

We will be providing this stuff as well as the recording following the webinar.

2:03

Second of all, we'll be answering questions at the end of the session, but I do want to emphasize that we'll be taking questions throughout.

2:11

So don't be shy about putting your questions in as you've just seen the instructions on how to do.

2:18

We will be amalgamating like questions and answering them as one.

2:22

So if you don't hear your specific wording, it doesn't mean that we're not answering your question.

2:27

I would also ask that if you have questions that are super technical in nature or very much sort of idiosyncratic to your insurer's particular circumstances, given that this is a collective setting, I would encourage you to save those types of questions for the written feedback that's available to you as part of the broader consultation on this topic.

2:51

Last piece is just that we are very much aware that there are some of you on the call today for whom the MCT and ORSA are not a formal requirement.

3:05

We will be using those terms today, but just as a matter of convenience in the context of a broader discussion about sound capital management processes.

3:15

So, again, conscious that this is not a requirement for everyone, but we will, through our own supervisory processes, seek to understand how you effectively manage your capital.

3:26

And these concepts are very much part and parcel of that.

3:31

Now that we're done with housekeeping, we can move on to the next slide.

3:36

And you'll be very happy to hear that I'm not the only one speaking with you today.

3:40

we have Victoria Lassot, who is our Director of Cata Union Insurance Prudential and Pensions Policy, Samreen Hossain, who is the Director of Insurance Prudential Supervision, and joining us to help answer questions at the end will be Steve Kokaliares, who's our Director of Approvals and Supervisory Practices. So I'm largely your cruise director.

4:00

These people will be saying the smart things, but before I turn it over to them, if we move to the next slide, It's important that we acknowledge that the land we are on is the traditional territory of many nations, including the Mississaugas of the Credit, the Anishinaabeg, the Chippewa, the Haudenosaunee and the Wendat peoples, and is now home to many diverse First Nations, Inuit and Métis peoples.

4:23

We acknowledge that Toronto is covered by Treaty 13 with the Mississaugas of the Credit and the Williams Treaties signed with multiple Mississaugas and Chippewa bands.

4:33

And as we move to the next, I will turn it over to Victoria Lassault to take you through the first part of our presentation.

4:42

Great. Thanks, David. And hello, everyone. As David mentioned, my name is Victoria Lassault.

4:48

I'm the Director of Policy for our Credit Union Insurance, Prudential and Pension Sectors, essentially the Prudentially Regulated Sectors.

4:56

and our team helps develop the rules and guidance for those sectors in close partnership with David and my other colleague you'll see on this call in the insurance prudential regulatory area.

5:08

Now before we jump into the details of the proposed guidance I wanted to spend a moment to highlight FISRA's principles-based regulation approach or PBR as we affectionately call it and how it fits within this proposed guidance.

5:23

As many of you may know, PBR is an approach that relies on broadly stated principles that are outcomes-focused as opposed to being prescriptive.

5:34

PBR gives regulators and stakeholders the flexibility to relatively quickly respond to market changes and innovations.

5:42

It uses terms, qualitative terms, such as fair, reasonable, to facilitate compliance as it allows regulated entities to under the spirit of the law in a proportional manner.

5:56

So the PBR or the proposed ORSA guidance is consistent with this PBR approach as it sets out high-level principles and outcomes for insurers to achieve, such as, for example, the roles and responsibilities of an insurer should be appropriately delegated, leaving it to the insurer to decide what appropriate means depending on your operations and your business.

6:21

The guidance also notes that insurers should adopt these principles depending on their size, complexity, and risk profile, which again gives flexibility to insurers in implementing those principles.

6:34

Now, on the next slide, just going into this concept of proportionality a little bit further, overall we recognize that there's no one size fits all approach for all insurers in the sector.

6:46

It is a very diverse sector.

6:49

And in the PBR approach, by assessing whether outcomes are achieved, we allow insurers the flexibility to determine how you can achieve those outcomes and we'll work with you very closely to understand how those outcomes are working for you.

7:05

We do focus a lot on the board, generally as part of PBR, and that is one of the, that is the first principle of this proposed ORSA guidance, which we'll talk about shortly.

7:18

We recognize that the board delegates a lot of its responsibilities to senior management, but it remains accountable for those things getting done.

7:28

So the board can delegate responsibilities, but it cannot delegate accountability.

7:36

And as we look at the capital management process, we look at what's being provided to the board so that the board can seek assurances for themselves that ultimately the outcomes in the guidance are being achieved.

7:51

And so we see sound corporate governance as a core principle underpinning sound capital management, the board providing oversight, supervision, direction, essentially the guardrails within which management exercises its judgment.

8:05

And we look at board oversight relative to the complexity and the size of the insurer, understanding how the board's given information to make decisions on behalf of the insurer and on behalf of policyholders, members and subscribers.

8:21

And overall, in order for the PBR approach to work, this order of the process really provides a really good opportunity for us at FSRA to engage with insurers and understand how you value your risks, how you apply those principles and outcomes in your assessments.

8:40

Next slide.

8:44

Now, getting into the proposed guidance, these are some of the key sections of the guidance.

8:50

We'll cover some highlights in terms of background and rationale for why we started developing this guidance.

8:59

I'll at a high level cover the five principles and we'll also discuss how this ORSA process fits within our risk-based supervisory framework and assessments.

9:10

Overall, as you may be aware, our consultation on the guidance launched on November 28th, and it will continue until January 28th.

9:18

So we really look forward to your feedback today and after the webinar.

9:25

Next slide, a bit of background on the proposed guidance.

9:30

So as you know, generally guidance is a standard part of FISRA's process for communicating with our sectors and explaining how we go about doing our work.

9:40

We typically issue guidance only when we see a need and a risk in the sector that needs to be addressed.

9:49

This particular guidance is part of our multi-year work plan for the insurance prudential sector, and prudent capital management is a crucial aspect, determining stability of insurers, and it's a key aspect of physical supervision and us being able to meter statutory objects.

10:06

So, it's a key piece of guidance for us to develop.

10:11

Overall an effective ORSA protects the rights and interests of consumers because insurers that effectively manage their risks and maintain adequate capital above the minimum regulatory capital levels, under a range of plausible adverse scenarios, are likely to maintain stability, long-term liability, and succeed, thereby contributing to public confidence the insurance sector, which is one of our objects as FSRA.

10:40

I'll recognize, and David mentioned this in the beginning, that the MCT guideline does not apply to all insurers, but I hope that we can all agree that prudent capital management is an important component for any insurance business.

10:53

This guidance is an approach guidance, meaning that it sets out FSRA's practices for assessing insurers ORSA, which supports prudent capital management.

11:05

FISRA does not approve an insurer's ORSA, but it does assess how an insurer determines its internal capital targets using the principles and intended outcomes of this proposed guidance.

11:18

And again, as David mentioned in the beginning, the guidance is called an ORSA, but what you do to prudently manage capital may be called something different.

11:26

The important thing is that whatever your capital management process is, it contains the high-level outcomes in our guidance.

11:35

And I'll just mention that the proposed guidance does not set out additional binding requirements or compliance obligations.

11:43

However, at the same time, we do consider this as part of our risk-based supervisory assessment process And meeting these high-level principles reflects in our supervisory intensity and the risk rating.

11:59

So we'll jump into the five principles shortly.

12:03

And I'll just mention that FISRA uses the five principles to assess how insurers effectively adopt the principles for the purposes of the overall risk rating.

12:15

The guidance is not couched in terms of expectations.

12:17

We talk specifically about the outcomes that we hope are achieved and this requires us at Pfizer to do a fair bit of work to understand and talk to you about how the process of working for you and how you are adopting these principles and ultimately as we go through this we hope that these are shared outcomes and ultimately that we're looking for the same things to be in terms of prudent capital management.

12:46

So getting into the five principles in the next slide, principle one, governance and oversight.

12:53

I'll just mention that under each principle, we have a core outcome, and then we describe the details of that outcome.

12:59

On these slides, we cover some of the highlights, but, of course, the guidance goes into more detail.

13:05

The key outcome for this is that some governance and oversight functions provide effective oversight to the assessment of capital needs based on the insurer's risk profile in determining the internal capital target.

13:18

The key point here is that board of directors are responsible for approving the ORSA in line with the corporate governance guidance for insurers.

13:28

As you may be aware that corporate governance guidance has been through consultation.

13:32

It's currently proposed guidance and we hope to be able to issue that sometime in the winter.

13:39

And that guidance is a lens through which directors can look at all of our guidance documents to understand where their responsibilities and accountabilities are.

13:50

The principles and that corporate governance guidance would apply here in terms of how engaged we would expect the board to be in the processes that we describe under this principle.

14:01

Senior management, of course, plays a very important role for the board, primarily bridging the gap, providing information so that the board can play its oversight role, ask appropriate questions, and get clarifications needed.

14:16

And ultimately, the ORSA strengthens an insurer's risk assessment.

14:21

And again, when we say ORSA, we mean the processes you have in place to ensure that you have adequate capital and that everybody in the organization, including the board, is comfortable with the insurer's solvency position.

14:35

Next slide.

14:38

So the second principle is comprehensive identification and assessment of risks.

14:45

And this principle is really about demonstrating how you get comfort that all relevant risks are captured in this process.

14:52

There's some fairly evident ones that we set out in the guidance, but recognize that we have a very diverse sector and you know best which risks you're exposed to, and which risks you should be capitalizing for.

15:08

The proposed guidance has a few risks, as I said, that are important to consider.

15:13

We say insurance risk, credit risk, market, operational liquidity, and concentration risks are some risks that you would want to consider.

15:23

But ultimately, as we look at this, what we will seek to understand is your process for assessing risks, and what are the ways that can be linked to the strategic planning process, to your enterprise risk management framework, or whatever else you choose to call your ERM framework.

15:41

And we look for comprehensiveness and consistency with other processes as we look to get comfort that this principle is achieved.

15:52

Next slide, principle three, relating risk to capital.

15:59

So the key point for this principle is to not place undue reliance on the minimum regulatory capital measures.

16:07

So we have our minimum capital test guideline, which is based on an industry-wide standard embedded into forms that PNC insurers across Canada submit to their respective regulators.

16:21

It's a standardized test, but that may not be reflective of each insurer's circumstances.

16:27

So what we're saying here is that when you're establishing your own internal capital target, reflect on your own operations and for each risk you've identified, consider how much capital is required for your business.

16:40

I mentioned ERM in the last slide, so ideally the ERM contains the universe of risks that an insurer is exposed to and it's about going through each of those risks and considering whether capital required, capital is required for each those risks, if any capital is required.

17:01

And another important aspect of this principle is also incorporating stress testing into your capital assessment, looking at a range of adverse and plausible scenarios.

17:12

Next slide, principle four, monitoring and reporting.

17:18

So the outcome here is that relevant and accurate information is provided to support the termination of the internal capital targets on an ongoing basis.

17:28

And the key idea here is that nothing is static.

17:31

There could be ongoing changes in the economy, in the business, in your risk appetite, your strategy, and these changes should be continually considered, reported on internally, deliberated, and as needed and incorporated into the internal capital target calculation.

17:49

The guidance does note that an effective ORSA is clearly and formally documented in an ORSA report at least annually.

17:58

and more often as circumstances warrant.

18:02

And should a change be material that it requires a full redo of an ORSA, such as, for example, a change in the risk appetite, that may be appropriate to do more often than annually.

18:16

We don't set out a template for an ORSA, but we know that it should contain sufficient information about various factors like the underlying principles, methodologies, key assumptions used in calculating and determining the ORSA and the capital required.

18:35

Next slide.

18:37

The last principle, internal controls and objective review.

18:42

So the outcome for this principle is that a robust internal control structure assures the quality of the ORSA process, which includes an objective assurance of the methodologies and key assumptions for determining the internal targets in a manner proportionate to the insurer's risk profile.

19:01

So the key here is that the capital management process and the ORSA should be subject to periodic objective review done by people with requisite experience to do so and who have access to the board.

19:15

And this is all part of an effective internal control structure.

19:19

The risks you ensure, the investments you hold, the businesses that you partner with could change.

19:26

So periodically it is useful to ask whether the information you have is still accurate, if there's new or better information, if there's anything you've learned that may necessitate changing how the ORSA is done.

19:40

The guidance sets out a very long list of changes to underlying risks to consider, which I will list out here, but you may want to refer to those for potential ideas to consider as through ongoing monitoring.

19:58

So now that we've wrapped up the five principles, I will hand it over to Samreen to explain how this fits in within our risk-based supervisory framework.

20:10

Great.

20:10

Thanks, Victoria.

20:11

And hi, everyone.

20:13

It's too bad that it's not in person, but appreciate you joining and happy that we have an opportunity to run through this proposed guidance today.

20:23

What I'll be doing over the next two slides is just doing a little bit of a Cliff Notes version of the risk-based supervisory framework, a little bit of a refresher, and then tying in how we assess capital and then ultimately how that flows into the ORSA.

20:40

And so just as a bit of a refresher, we did implement the risk-based supervisory framework for insurers in April of 2023.

20:48

So it's been about a year and a half.

20:51

And there's a couple of key concepts within this framework.

20:54

And again, this framework articulates our approach to carrying out supervisory assessments.

21:00

And so an underpinning concept is the knowledge of business.

21:04

This is critical in the sense that we know that our sector is small, but it's complex.

21:12

Within this sector, we have different subsectors represented as well.

21:17

And throughout our issuance guidance, throughout our supervisory work, that's always at the forefront in terms of proportionality, which is the next concept, and looking at the size, complexity, risk profile of the insurer, And ultimately, the insurer's failure, including systemic impact, is considered.

21:37

Going back to the knowledge of business, this has a couple of different components.

21:43

One of them is we do look at the macro, the mesos of the industry, and the micro factors.

21:50

And the reason this is important for capital management as well is that when we are talking about risks that the insurer is facing, we do an assessment both on what is the insurer facing from a macro level?

22:03

And then what is the impact on that insurer from the industry level and what is the impact?

22:08

And in order to do that and just determine what the impact is, we really do need to understand the individual insurers themselves.

22:17

We carry out our supervisory work through supervisory assessments, thematic reviews and monitoring.

22:23

These are not separate and distinct, they're all connected.

22:27

And so there's a lot of, as I mentioned, underlying themes in terms of knowledge of business proportionality that carry throughout.

22:34

Ultimately, it determines the overall risk rating and intervention level.

22:39

Now, where does capital fit into this and our assessment of capital?

22:43

And so I'll walk through when it comes to capital, we look at that from different levels.

22:49

And so of course, there's the quality and quantity of but there's also the availability, there's the oversight, and just to talk a little bit more about the oversight piece, that's something that you can't get through just looking at the numbers.

23:06

And so this is where that, if you look at the bottom, that transparent, open, continuous communication comes in, and this is also where a lot of the principles that Victoria spoke about are important.

23:18

In terms of achieving the outcomes, that's not something that can looked at just by looking at the number and the number of the capital and where your capital level is. ;And so that discussion, that dialogue is critical.

23:32

The other component of it is really understanding the overall capital management practices, policies that are in place, and where does the ORSA feed into that.

23:43

And so as we discussed, looking at the individual insurers, the risks that are being faced, the risk appetite and how that ties into your determination of your internal capital target is something that, again, we don't approve internal capital targets, but we need to be able to understand why you determined that that is adequate for your insurer.

24:07

What are the risks that you're facing? What is the level of risk?

24:10

Because as we know, the MCT looks at industry level risk margins, which may or may not be the same for your insurer.

24:20

And so the ORSA has an opportunity to look at what risks you're facing, what is your risk appetite, what are the level of risks that you're comfortable with, and then ultimately, what are some of the other circumstances?

24:32

So as an example, availability of capital, how does that impact ultimately where you land in terms of your internal capital target?

24:40

and what kind of stress testing goes in to support that.

24:44

And then we will have a discussion with you both throughout, you know, whether it's a comprehensive assessment, whether it's through monitoring, and that's something we'd look at.

24:53

So the ORSA definitely provides a great tool for us to be able to have that conversation to better understand the risks that you're facing and also have that conversation around an adequate level of capital.

25:06

This is something that throughout our work has come up where insurers will say, well, we're well-capitalized.

25:14

And ultimately, what does well-capitalized mean?

25:18

And it's very difficult to determine what well-capitalized means without understanding the individual insurer and the risks that they're facing.

25:26

And so a determination of well-capitalized also involves understanding the risks, how capital is managed, the availability of capital, and a number of other things.

25:37

and so this guidance will definitely help provide more information to the sector on how we go about assessing the adequacy of capital, and it's more than just the amount. We can go to the next slide.

25:54

So a lot of this I've already covered, but essentially the risk-based supervisory framework is a way for us to assess the practices and the effectiveness of risk management.

26:05

Where it comes in for capital is in a couple of ways, as I mentioned, but the one thing I did want to highlight is that we've spoken a lot in other forms about that ongoing dialogue and having that conversation.

26:18

And so as an example, if an insurer is expecting or they projected to say, well, it looks like our capital is going to fall close to or perhaps below our internal capital target, this is something that we would want to be notified, so reach out to your relationship manager to let them know in advance and not something that we would want to see when receiving your quarterly or your annual returns.

26:43

And so this is an example of an important conversation that you go to reach out to have, and then also say here are the actions that we're taking to bring it back up in the timelines.

26:52

And so we would have a conversation around that.

26:55

As Victoria mentioned, we're not looking to approve an ORSA, but it is the discussion point we'll seek to understand the or so the inputs, the assumptions, and ultimately how the insurer has determined the adequacy of their capital and capital management practices.

27:12

Okay, I will turn it back to Victoria to close this out. Great, thanks Samreen.

27:20

So we are now at the summary before we get into our question and answer period.

27:27

So we hope We found this presentation and overview of the guidance useful.

27:34

Just to reiterate three key points, effective capital management is crucial to the stability of an insurer.

27:40

And so this proposed ORSA guidance sets out FISRA's assessment of that process.

27:47

Sound corporate governance is really the bedrock of capital management and FISRA's PBR approach.

27:53

That is the first principle in the proposed guidance.

27:56

And, overall, the ORSA process provides a good opportunity for us at FISR to engage with insurers, as Simreen was mentioning, through dialogue and understanding, to understand how you evaluate your risks.

28:09

And this helps with FISR's assessment of the inherent risks of your business, your controls, and ultimately helping us determine your overall risk rating.

28:18

So, as I mentioned, the public feedback period is open until January 28th.

28:26

We look forward to your feedback, we'll definitely consider your feedback, and our plan is to issue the guidance as final sometime later in 2025, probably around summer 2025.

28:41

So with that, I'll pass it over to David to moderate the Q &A period.

28:52

Thanks, Victoria. Sorry, just waiting for my camera to cycle up.

28:55

Ooh, there we go. Maybe that wasn't such a good thing.

28:59

So I'm going to ask Sam Rien and Steve to join me on camera here as well as Victoria.

29:06

As I said, we've got a couple of questions that have come in.

29:09

Please feel free to submit your questions as we start to go through these.

29:14

If there aren't any additional questions, we'll assume that we've explained things so well that everything is perfectly clear and may give you some time back in your day.

29:27

But as I said, we do already have a few questions and so I think, and Samreen, maybe I'll start with you because there's two here that are somewhat related.

29:39

The first one being, can you comment on how similar your ORSA guidance is to OSFIs and the second one being, my insurer is already preparing an ORSA in line with OSFI expectations. Should we expect to have to change anything?

29:56

Perfect. Thanks, David, and thanks for the question.

29:59

So I'm happy this one came up because we are very aware that many of our insurers have already started this process.

30:06

And I do want to highlight that again, even where it's not required, it's been started.

30:10

And so that's great step to see.

30:12

When it comes to the OSFI guidance and our guidance, you will see no material differences in terms of fundamentally the concepts and the outcomes that we're looking to achieve. And so what I will say is that, you know, take a look at it.

30:26

If you have any specific questions or anything does glare, you know, stand out to you to say, well, I think this does seem a little different.

30:32

Let's have a conversation because fundamentally there shouldn't be any material differences in terms of the outcomes and what we're looking Yeah, and I would say, I mean, much of what has been described today is about us getting comfort that you're comfortable, that what you're doing is appropriate for your specific insurer.

31:00

And so I think OSFIE has taken a somewhat more rigid approach, but I think you can take comfort that as long as we're in a position to understand why you're comfortable and why board is comfortable that your approach is sufficient and is effective for you.

31:19

You'll be just fine.

31:23

Question for Victoria, will we have access to the draft guidelines before January 28th?

31:31

Yes, so the proposed ORSA guidance is available on our website.

31:36

It will be, it would actually up for quite some time even after January 28th for reference, but the formal public consultation period during which you can submit feedback or proposed changes would end January 28th. But you can access the proposed guidance at any time.

31:54

We generally don't archive our consultations for a few years, so you'll have it available for some time.

32:04

Great. Thank you.

32:08

Question for, and I'm going to pick on Samreen again here because she knows the things. The slides say FISRA may review the ORSA.

32:16

Does this mean there won't be an annual submission of an insurer's annual ORSA?

32:23

Thanks, David.

32:24

And so at this time, what I'll say is that just going back to what I mentioned in terms of, I'm going to start with that knowledge of business and that we're building our knowledge of the sector.

32:33

If you are doing an ORSA, absolutely submit that to us.

32:38

In terms of an annual requirement, we don't foresee there being an annual requirement to spend ORSA, it's gonna be more of a fluid process.

32:45

But given that we're just kind of having this get underway, building that knowledge of the insurers, you can expect that if you are producing ORSA that we would ask for it.

32:55

And if, you know, when this guidance does come out, if it is something that is required, that we would be speaking to you about your internal capital target and any kind of support around achieving those outcomes.

33:06

And as Victoria mentioned, whether it's an ORSA, whether what it's called, it's really about understanding how you arrive at that internal capital target and the prudence of your capital management practices and the oversight, thank you.

33:23

Great.

33:25

All right, here's a question and I'll maybe open this one up to the broader group.

33:30

You mentioned that there are some insurers for whom the MCT and ORSA is not a requirement.

33:36

Do you anticipate any difference in experience for insurers for whom the MCT ORSA requirement applies versus those for whom it doesn't?

33:49

I can...

33:50

Oh, sorry.

33:51

Is there someone else speaking?

33:55

I think I would say that whether it applies or not, when we conduct an assessment, we would use the same principles in the guidance.

34:07

I think those are principles that we can all stand by, governance, determining whether you have enough capital or not.

34:16

Whether it's officially called an or so or not, I think that's something every insurer probably should be doing.

34:28

It's in their interests and in their policyholders' interests.

34:33

And I'll see if anybody else wants to weigh in on that as well.

34:40

Yeah, I mean, I think one of the benefits of expressing things in terms of outcomes is hopefully we're able in the course of our interactions to convince you and, you know, to a certain extent, convince ourselves that these are outcomes that we all sort of share in terms of desired outcomes.

34:57

These are all things that we want.

34:59

and so I think regardless of whether the requirement applies or doesn't, we'll want to understand how you're confident that these outcomes are being achieved and so to that extent I would expect the process to look very similar if not identical in most cases but Sam as the head of supervision perhaps I don't know if you have different views on that.

35:24

No I think everything that's been said is absolutely aligned.

35:29

And I think it's an important question because I'm going to use this opportunity to also take one step back and say, we are building.

35:37

And so the rules and guidance that we're putting out over the next four years is very intentional.

35:42

It doesn't mean that additional ones can't come up if we see change in risks or we see an area of focus, but these are very foundational for a reason.

35:50

And when we look at the sector, the complexity of the sector, what is technically a requirement or not, even in the absence of guidance or requirement, we are seeking to understand because these are things that are, as both David and Steve have said, are fundamental, right?

36:05

They should be shared outcomes and things that you're doing in terms of your long-term viability, your policyholders, your subscribers, your members, and so ultimately there is not expected to be misalignment and there's less focus on the, I would call it, the terminology of requirement versus not.

36:22

That's really a you know, a technicality.

36:26

But in terms of our assessment of capital, that's being done regardless of whether there's guidance or not. Great. Okay.

36:42

I see that there are some questions here that are not directly related to the ORSA process.

36:49

And so, given that we want this to be a relatively focused discussion, I'd like to say that this is important to us, but I would encourage you to reach out to your relationship manager and or even just to Sam Rien and myself directly to answer some of those questions because as I said we want to encourage dialogue with the sector but again this is this is an ORSA focused discussion and we'd like to keep it that way.

37:20

I don't see any additional ORSA questions at the moment so I'm going to filibuster for just a minute or two to give you the opportunity to put some more questions in the chat.

37:31

I do want to emphasize that this is part of a broader consultation process and that written feedback is something that we take very seriously as we take another look at our proposed guidance before finalizing it.

37:44

And so it really is a great opportunity for you to shape the guidance to a certain extent.

37:50

And I think having worked for a number of regulators in the past, I would stress that this is something that FISRA is much better at than many of its peer regulators.

38:00

As you go through that written feedback, I would encourage you to the extent that you can to engage with your board and see if they have any questions.

38:12

Because, again, this guidance is very focused on the board and on the board's role.

38:18

And so while there's no need for directors to provide individual feedback, it's very, very good practice to incorporate any questions that they might have or concerns that they might have into your insurer's collective feedback on this.

38:34

And so I see that I have filibustered successfully and we now have some additional questions.

38:44

And the first one, and this is a bit more of a technical question, but I think we'll allow it because it might be, I think it's one on which we can apply.

38:51

For the purposes of this guidance, how is concentration risk defined?

38:56

For example, is it related to concentration of insured risks or concentration of investment portfolio or something broader?

39:07

I can jump in on this one and then see if anyone wants to add.

39:11

And so we mentioned concentration risk and we look at the other risk categories.

39:15

I'm going to start by saying it is broader, so concentration can come in a number of forms.

39:20

And so when you look at your risk categories, if there's not an appropriate consideration for various concentration risks, whether that's in a particular area of your business, whether that's in your investment portfolio, that's something that we would discuss with you.

39:36

Now, whether that comes through in your particular margin that you think you should be holding for a particular risk or whether that's an additional on top of that to account for concentration.

39:46

Again, this will be a conversation we have, but I will just start by saying it is broader.

39:50

and it's looking at anywhere in your business that you believe that there is potential for material concentration that's not being captured in the calculations.

40:04

I think that's an excellent answer. Thank you, Samreen.

40:07

And this one sort of, I guess, more of a general question is, is this the first guidance on ORSA proposed by FISRA, or is this an update?

40:21

I can probably take this one.

40:23

So as Samreen mentioned, we're in build mode and we're, so this is a new area for FISRA and so we have, we're very conscious about the pieces of guidance that we put out there as we're building.

40:39

The ORSA guidance is a brand new piece of guidance for FISRA.

40:43

We didn't have previous guidance on prudent capital management for the insurance prudential sector.

40:50

So yeah, this is a brand new piece of guidance.

40:53

I will say we do have an existing capital related piece of guidance called the Minimum Capital Test Guideline.

41:03

So that's not directly related to capital management processes, but it is a related piece of guidance that's already out there.

41:14

Great, thank you.

41:16

David, I may just add that we refer to ORSA, but one of the key concepts to really look at, and that also ties in the MCT and the ORSA, is your internal capital target.

41:28

And that's a key piece of conversation and sort of focal point in understanding the importance of the internal capital target.

41:35

And this guidance is an opportunity to also emphasize that and I think communicate that to the sector.

41:42

And so again, this is not to say that we haven't had those with our insurers and that this is not something that you're already looking at or requires you to do more.

41:51

In many cases you may already be doing this and it's a matter of us having that conversation to understand but in other cases we know that it hasn't always been clear in terms of some of the terminology and so we're hoping this guidance helps to clarify some of that as well.

42:10

Okay I do want to take a second also to acknowledge the fact that we have a question in the chat that that's more related to consumer protection or market conduct issues, just to assure that person that this is something that we take very seriously.

42:25

This is, we have a dedicated team for this sort of thing.

42:29

And thank you for your question.

42:31

And we're gonna reach out to you directly to sort of better understand the context so that we can provide you with an answer.

42:41

All right, I'm going to give one more minute for any additional questions.

42:47

And perhaps this is really a tribute to the team for explaining things so well.

42:53

But again, to emphasize, this is not your final opportunity to provide feedback.

42:58

This is a process that FISRA takes very seriously.

43:02

We understand how unique and diverse and weird and wonderful the prudentially insured, sorry, prudentially supervised insurance sector is for Ontario.

43:14

Great lengths have been gone to in order to make sure that this is a piece of guidance that makes sense for everyone.

43:20

And to the extent that it doesn't, we very much want to hear about it.

43:24

Beyond that, I want to thank you again for taking the time for us this morning, for engaging with us on what we feel is a very important topic.

43:32

And we look forward to ongoing discussions with the sector on effective capital management and many other topics going forward.

43:41

With that, I will wish you a good rest of the day.

43:49

Thank you.