ECIC IR 2023

Integrated Report 2023

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Own Risk and Solvency Assessment (ORSA) The ORSA process is an integral element of the Corporation’s risk governance system. While subject to regulatory requirements, it is designed primarily to satisfy the internal need to manage all material risks and ensure sufficient capital to meet solvency and business requirements. The assessment is conducted annually and can be undertaken more frequently if circumstances dictate, in line with the ORSA policy. The ORSA ensures that: • processes and systems are in place and can adequately assess, monitor, and measure the risk profile and solvency requirements • risk management system can accurately assess the Corporation’s risk profile and the amount of capital required to cover the risks • assessment of the results is embedded in decision-making process. The ORSA encompasses reasonably foreseen and relevant material risks that include, at a minimum, underwriting, credit, market, operational and liquidity risks (where relevant) and any additional risks arising from activities and operations. The ORSA identifies the relationship between risk management and the level and quality of financial resources required and available. The assessment also addresses the quantitative and qualitative elements relevant to the medium- and long-term business. The assessment includes: • potential future changes in the risk profile in stressed situations • the quantity and quality of own funds required over the business planning period • the quantity and quality of own funds available, including the composition of own funds across the various tiers and changes to this composition over the planning horizon • the overall solvency needs expressed in quantitative terms, complemented by a qualitative description of the risks and any deviations between the risk profile and implied risk profile underlying the solvency capital requirement calculation.

Above solvency derived risk appetite limits are the utmost maximum or high watermark in terms of possible risk exposure under the different measures. The Corporation is in the process of reviewing its risk appetite framework to ensure operative limits that take cognisance of potential convergence and/or intersection of disparate risk factors that could potentially result in higher aggregate exposures playing out simultaneously. At a macro level, the Corporation is exposed to global economic shocks that have a knock-on effect on the demand of South African exports globally and to Africa in particular. In the post pandemic world most countries have been left with elevated debt levels arising from their respective fiscal allocations to finance pandemic containment measures on one hand. On the other hand, persistently high global inflation has resulted in monetary policy normalization in most developed economies, with resultant high cost of borrowing. The confluence of high debt and high borrowing costs have seen a sharp rise in the risk of sovereign default in one country, within the ECIC portfolio. Whilst the Corporate risk register captures the sovereign default risk, other risks that have deteriorated include reputational risk and credit downgrade risk. Whilst the former emanates from perceived stringent claims payment process, especially where material policy requirements have been breached in ECIC’s view, the latter is due to less capital relief from comparatively low rated ECIC paper. Both risks will have to be managed closely to ensure continued confidence in ECIC cover. The continued weakness of the rand and the risk of possible US sanctions against South Africa, both move in the same direction in terms of weakening ECIC’s balance sheet. Rand weakness results in appreciation of US dollar assets and balance sheet erosion through high taxes. The risk of sanctions would trigger outward portfolio flows that adversely impacts the value of rand assets to meet claims payments. Governance and ICT risks are also trending upwards due to potential cyber attacks as well as Board succession planning challenges. Click on the link below to access the 2022/23 Risk Register: Corporate Risk Register

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