National Association of Insurance Commissioners (NAIC) Own Risk and Solvency Assessment Subgroup Adopts Revised ORSA Guidance Manual
Mar 26, 2013
At its meeting yesterday, March 25, 2013, the National Association of Insurance Commissioners (“NAIC”) Own Risk and Solvency Assessment (“ORSA”) Subgroup (“Subgroup”) adopted the first changes to the ORSA Guidance Manual (“Manual”) since its most recent revision in 2011.
To view the updated Manual revisions, click here.
Primarily, yesterday’s changes substitute the concept of “group assessment of risk capital” for “group risk capital.”
They also effect the following:
- Add language that an insurer should identify the basis of accounting for its ORSA Summary Report (such as Generally Accepted Accounting Principles/GAAP or other).
- Add language that an insurer should explain the scope of its ORSA, such that the ORSA Summary Report identifies which entities within the group are included therein, possibly accompanied by an organizational chart.
- Adds language that an insurer should include a summary of material changes to the ORSA from the prior year.
- Adds language that an insurer should provide a comparative view of group capital (which was revised from the prior “risk capital”) from the prior year.
- Includes changes to synchronize guidance in the Manual with the requirements in the adopted Risk Management and Own Risk and Solvency Assessment Model Act (Model #505).
- Added a glossary of terms in the Appendix.
- Includes edits that are considered general clean-up of technical language throughout the Manual, as well as minor modifications to clarify the intent.
Notably, revisions to the Manual completely change the definition of “available capital” to mean: “The amount of resources that an enterprise has at a given point in time under a defined valuation or accounting basis (e.g. economic, statutory, GAAP, or a combination) to support its business and under the defined valuation represents the insurers assessment of the types of capital required to support its business.”
Also discussed at yesterday’s meeting were confidentiality concerns relating to the 2013 ORSA Feedback Pilot Project, which calls for undisclosed groups to voluntarily submit a confidential ORSA Summary Report for regulatory review so regulators can provide high-level (non-group specific) feedback to industry prior to the actual ORSA Summary Report effective date.
At the previous Subgroup meeting in February 2013, it was reported that the confidentiality of the filings submitted under the ORSA Feedback Pilot Project would be protected under Texas examination statutes. Texas representatives had indicated that, while they would not issue an examination warrant for any volunteers, the ORSA filing would be submitted under the examination authority instead. The representatives said that volunteers would be provided with legal citation and language that could be incorporated into their ORSA filing when it is submitted to Texas.
A written agreement between Texas and the NAIC would also serve to protect confidentiality, it was discussed at yesterday’s meeting.
To view the March 25 meeting agenda and materials, click on the hyperlinks below.
Hyperlinks to additional comments submitted on the Manual revisions are provided below.
The Subgroup is charged with developing an enterprise risk management (“ERM”) education program for regulators that is designed to maximize the benefit of such training for the ORSAs, effective 2015. It will also study the need for the NAIC to hire an ERM expert to provide staff support and future maintenance of the NAIC guidance on ERM and ORSA, and to provide assistance and training to states as they implement examination and analysis of ORSA.
About the ORSA Manual
The ORSA Manual is designed to provide guidance to an insurer and/or an insurance group of which the insurer is a member with regard to reporting on its ORSA as required by the domestic state’s version of the NAIC Risk Management and Own Risk and Solvency Assessment Model Act (#505).
The ORSA, which is a component of an insurers’ ERM framework, is a confidential internal assessment appropriate to the insurer’s nature, scale and complexity, conducted by the insurer of the material and relevant risks identified by the insurer associated with its current business plan and the sufficiency of capital resources to support those risks. As described below, an insurer that is subject to the ORSA requirements will be expected to:
- Regularly, no less than annually, conduct an ORSA to assess the adequacy of its risk management framework, and current and estimated projected future solvency position;
- Internally document the process and results of the assessment; and
- Provide a confidential high-level ORSA Summary Report annually to the lead state commissioner if the insurer is a member of an insurance group and upon request to the domiciliary regulator.
The ORSA has two primary goals:
1. To foster an effective level of ERM at all insurers, through which each insurer identifies, assesses, monitors, prioritizes and reports on its self-identified material and relevant risks, using techniques that are appropriate to the nature, scale and complexity of its risks in a manner that is adequate to support risk and capital decisions; and
2. To provide a group-level perspective on risk and capital, as a supplement to the existing legal entity view.
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