A Dynamic Risk Modeling Approach to ORSA: Integration of Early Warning Indicators and Stress Testing Scenarios

This study aims to develop a dynamic analytical framework linking Early Warning Indicators (EWIs) with stress test scenarios within the Own Risk and Solvency Assessment (ORSA) process. A Dynamic Risk Model (DRM) was applied to simulate variations of key financial variables including the Solvency Capital Requirement (SCR) ratio, loss ratio, and liquidity stability index over a ۶۰-month horizon. The input data were entirely synthetic, generated through ARIMA and GARCH time series models combined with Monte Carlo simulations for samples of ۵, ۲۰, and ۳۰ insurance undertakings, aiming to assess risk dynamics across different portfolio sizes. The results indicate that in the pre shock scenario, the system remains relatively stable. Under a claim increase shock of +۳۰%, the average SCR decreased to around ۰.۹۵, and the early warning month shifted from month ۲۹ to approximately month ۴۴, reflecting a delay in solvency signals. Conversely, a premium decline shock of −۲۴% led to an SCR of about ۰.۸۲۵ with a stable DRM Index of ۰.۵۲۵, suggesting convergence of high risk structures under intensified shocks. Moreover, enlarging the sample size from ۵ to ۳۰ companies reduced the SCR variance, supporting the stability of the DRM framework. Overall, the combined ORSA–DRM approach effectively identifies the onset of financial instability and dynamically depicts the mechanisms of risk transmission, thereby enhancing Chief Financial Officer (CFO) and Chief Risk Officer (CRO) decision making in defining optimal solvency early warning thresholds. The findings confirm that integrating EWIs into the ORSA stress‑testing process improves both the sensitivity and predictive power of solvency monitoring. The model demonstrates robustness across varying shock intensities and portfolio dimensions, while distinguishing transitory volatility from structural weaknesses. Methodologically, this research introduces a replicable dynamic framework that transforms ORSA from a static compliance routine into a forward‑looking supervisory mechanism. Conceptually, it establishes a new analytical bridge between proactive solvency management and quantitative early‑warning design representing a substantive innovation for actuarial modeling and risk governance.

کلیدواژه ها:

Own Risk and Solvency Assessment (ORSA) ، Early Warning Indicators (EWIs) ، Dynamic Risk Model (DRM) ، Stress Testing ، Solvency Capital Requirement (SCR)