At the recent National Association of Insurance Commissioners (NAIC) Spring 2014 national meeting, two new documents were approved for release as exposure drafts: the Draft Own Risk and Solvency Assessment (ORSA) Guidance for Financial Analysts and the Draft ORSA Guidance for Financial Examiners. While the documents are intended to be guidance for insurance department financial analysts and examiners, the guidance provides a window into expectations for the future.
Key take aways from the ORSA guidance for examiners and analysts
|Regulators are guided to use a maturity level model when assessing your risk management framework, which utilizes the incorporation of concepts developed within Risk and Insurance Management Society’s (RIMS) Risk Maturity Model (RMM).||Conduct your own risk management framework assessment using the RMM, stay ahead of expectations and be in a position to provide the regulator with your insights and action plans before they step onsite for your next risk-focused examination. You may find it will save examination costs and resource utilization.|
|Five key principles of an effective risk management framework will be assessed and procedures tailored to each principle:||Develop a risk management /ERM policy that describes how you manage risk and incorporate the key principles.|
|1. Risk culture and governance|
|2. Risk identification and prioritization|
|3. Risk appetite, tolerances, and limits|
|4. Risk management and controls|
|5. Risk reporting and communication|
|Stress testing examples/scenarios are provided within the guidance, which are based on risk classifications such as credit, market, pricing/underwriting, reserving, liquidity, operational, legal, strategic and operational.|
|Analyst will be considering group capital requirements and determination of action capital, cushions based on economic capital modeling and stress testing, method of measurement, quality of capital, quantification of risks, controls and prior year considerations.|
Guidance is provided on how the regulators’ assessment of the ORSA/ERM process can impact your examination
|Commentary on the exposure drafts are due Friday, May 2, 2014.|
The NAIC Risk Management and Own Risk and Solvency Assessment Model Act (Model #505) requires all insurers with direct written premium and unaffiliated assumed premium of $500 million and greater to submit an annual ORSA Summary Report and/or all insurers who are a member of an insurance group that have direct written premium and unaffiliated assumed premium of $1 billion and greater to submit a group annual ORSA Summary Report. However, many of the proactive considerations described above represent sound risk management practices and are relevant to all insurers, regardless of premium size.
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