Key NAIC Panel Approves ORSA, a Group Supervision Requirement of Solvency II

Impressionists on Paper, Courtesy AP Impressionists on Paper, Courtesy AP

An NAIC task force has approved and sent to a higher committee the manual that will be used to implement the proposed Own Risk and Solvency Assessment (ORSA) requirement for insurance holding companies.

Actual implementation of the ORSA manual won’t be sooner than an effective date of  Jan. 1, 2014, if not later, because critical issues remain.

This includes the industry assertion that regulators perhaps lack the legal authority to implement the ORSA requirement.

The Solvency Modernization Initiative Task Force approved the vote by voice then referred it to the Financial Condition Committee for further action.

The decision was made Saturday at the NAIC’s fall meeting at the Gaylord National Harbor beyond the Beltway of Washington.

“ORSA Is critical,” said Pennsylvania Deputy Insurance Commissioner Steve Johnson to fellow SMI regulators and interested parties at the meeting.  

“The one thing I like that the international people are doing is ORSA. I think we can show  leadership with ORSA; that we took the lead,” Johnson said, after delivering a diatribe against international regulatory initiatives like ComFrame, a “400-page document” developed by the International Association of Insurance Supervisors in Basel, and other aspects of Solvency 2, the European Union insurer solvency and risk management standards framework. ORSA is a group supervision requirement of Solvency 2.  

“A lot of us our working on very limited budgets at the state insurance departments, but looking at ComFrame (http://www.iaisweb.org/__temp/IAIS_initiates_development_of_ComFrame.pdf), if you just had one internationally active company in your state-, even one, there would be no resources in my department to do it under the current draft,” Johnson complained, noting he couldn’t even hire people he would need.  “There are implementation risks on many of these [international] items,“ Johnson warned.

The industry had supported the manual after winning changes in it, but was concerned about the appropriateness of the implementation method proposed by NAIC staff.

No one is running to ORSA with open arms among the industry.

The American Council of Life Insurers believes that the NAIC's development of ORSA is moving in a positive direction, “as evidenced by the approval of the ORSA Guidance Manual by the NAIC Solvency Modernization Initiative Task Force,the proposed ORSA Pilot Project, and recognition that the ORSA will continue to evolve over time, “the association stated.  

Going forward, however, the ACLI, like other industry trades, is concerned about protecting confidential information and a “realistic timeline for implementation.” The Property Casualty Insurers Association of America officials weighed in early with similar concerns.

 “As both industry and regulators recognize, confidentiality is of paramount importance, since the ORSA Report and supporting materials will contain highly proprietary information,” PCI officials said in a comment letter. “Yet at least two states have acknowledged that their Form B filings are public documents.”

The NAIC also needs a mechanism to ensure coordination of any annual summary report through a lead state to ensure consistency and uniformity, trade groups agreed. Proposed amendments to the document did not provide that assurance.

As proposed, it would have required insurers to include it as part of Form B, which must be filed by all insurers in a holding company with their domiciliary states.

The ORSA Manual, if adopted by the NAIC and then individual states, would apply the ORSA requirement to stand-alone insurers with premiums exceeding the manual’s exemption threshold.

The ACLI would also like to see a filing timeline in line with company practices and regulators' intent to leverage internal reports to management, rating agencies and other regulators, and a link to risk focused surveillance program.

The  NAIC did accept some changes to the manual as requested by the industry, which still remains concerned that the comment period was too short, and that the “potential for unintended consequences remain in the document.” The American Insurance Association voiced similar concerns. While believing that the type of information sought by ORSA is best provided through the current risk-focused surveillance network, it acknowledged that NAIC officials are insisting on an additional system.

In a comment letter submitted by Philip Carson, AIA assistant general counsel,  “it has become obvious that NAIC staff and a number of regulators want a periodic filing, regardless of any need for it.”

Carson said that if regulators believe a periodic report is needed, then amendments should be made to the Model Law on Examinations, thereby creating authority for a state commissioner to periodically ask for ORSA information outside of a scheduled examination.

At the very minimum, the working group should have a full and robust discussion with industry about the model holding company act, the model holding company regulation and forms, and other mechanisms for possibly implementing an ORSA, Carson said.

 

 

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