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Time To Get to Grips With ORSA

October 16, 2014| By Janice Englesbe | L/H General Industry, P/C General Industry | English

Region: U.S.

The effective date of the National Association of Insurance Commissioners’ (NAIC) Risk Management and ORSA model Act, January 1, 2015, is getting closer. As the name suggests, the Own Risk Solvency Assessment (ORSA) is an internal process whereby an insurer evaluates the adequacy of its risk management and solvency positions. This evaluation is conducted not only on its current risk profile, but also on its forward-looking, or prospective, risk profile.

An ORSA filing is required for a single company with gross written premiums greater than $500 million or a group with gross written premiums written greater than $1 billion.

While not a mandate for companies that do not meet the NAIC thresholds, ORSA is becoming something of a “best practice” or standard across the industry. It is possible that all regulators will move in this direction, but even if they do not, the ORSA exercise can yield benefits for all size companies.

Most companies domiciled in states that passed legislation adopting the NAIC’s model act are actively conducting their ORSA process in preparation for filing the required annual summary report sometime during 2015.

In the summary report, insurers are instructed to evaluate material risks (e.g., underwriting, credit, market, operational, liquidity risks, etc.) that could have an impact on their capital under both normal and severe stress scenarios.

The NAIC has not been prescriptive in its guidance manual, but it does suggest three main sections for companies’ reports:

  • Section 1 - Description of the Insurer’s Risk Management Framework
  • Section 2 - Insurer’s Assessment of Risk Exposure
  • Section 3 - Group Risk Capital and Prospective Solvency Assessment

The guidance manual can serve as a high level road map for insurers beginning the process of drafting their ORSA documents, so it will benefit insurers to be familiar with it. Naturally, companies should check with their legal or compliance departments concerning any variations by their state legislatures to the Model Act. Also, it is worth mentioning that the manual is still in draft form so insurers should check for any revisions before finally filing their reports.


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