The chair of the Own Risk and Solvency Assessment (ORSA) subgroup is recommending conducting a 2013 ORSA Feedback Pilot Project to provide future guidance to NAIC working groups beginning drafting of regulatory guidance for review of ORSA.
A 2013 pilot project may provide additional observations and considerations to be included in such guidance to the involved NAIC working groups, wrote Danny Saenz of the Texas Department of Insurance. Saenz chairs the ORSA subgroup and wrote Nov. 1 to Rhode Island Insurance Superintendent Joseph Torti III, who chairs the Financial Condition Committee.
The ORSA process is meant to be one element of an insurer’s broader enterprise risk management (ERM) framework. The ORSA and the ORSA summary report links the insurer’s risk identification, measurement and prioritization processes with capital management and strategic planning.
The ORSA subgroup recommended key structural changes for the 2013 project including identifying components that should be included in all ORSA summary reports. These components include an explanation of the basis for the accounting method used in the report, a summary of material changes to the ORSA from the prior year, a comparative view of group risk capital from the prior year and syncing up the Manual with the already NAIC-adopted Risk Management and Own Risk and Solvency Assessment (RMORSA). The RMORSA, like the ORSA, is part and parcel of the NAIC's broader Solvency Modernization Initiative (SMI).
While the RMORSA model act requires the ORSA summary report to be filed first with the commissioner in the lead state of domicile in 2015, all documentation and evidence that supports the report must be available for regulatory inspection upon examination (or whenever the lead commissioner so requires), wrote Tom Sullivan, a principal in PricewaterhouseCooper's Financial Services Regulatory Practice for sister publication PropertyCasualty360.
One thing not necessary—but which insurers should consider, the subgroup suggested—is a comparative view of up to three years of financial data provided in the report, some of the feedback to the industry from the subgroup listed as a consideration.
Another consideration is, if the insurer/group is international, the ORSA should include overall group capital. The subgroup noted that while there is a group capital assessment in the U.S., the international standards for group capital may differ. It said it was beneficial for the "international groups" to include a description of their group’s overall group capital.
A draft of the proposed revisions will be released by the subgroup for public comment for future consideration and adoption.
The subgroup concluded that the ORSA will be a valuable tool within the regulators solvency monitoring process and will provide insight into the insurer’s management perspectives and risk profiles. In addition, it will provide pertinent information to help regulators better focus on key issues within the analysis and examination of the insurer.
However, timing the project for late summer or early fall 2013 will allow more time for volunteer insurers to prepare their ORSA summary reports and additional time allowed between submission and the subgroup’s interim meeting will allow for greater depth of review, Saenz wrote.
The group is also requesting that insurers/groups only volunteer for the pilot if they are willing to provide un-redacted complete ORSA summary reports with actual data; and consider including lead state regulators in the review process.
Of course, companies are nervous about sharing confidential data.
The ORSA subgroup was charged with creating an ORSA Feedback Pilot Project in 2012 for insurers/groups which have not been disclosed.
For this, the subgroup held a confidential conference call with the volunteer companies to provide feedback and appeared to get at least 14 submissions.
The subgroup said nine company submissions were deemed complete, of which, three included complete data and six included sections where data was redacted but it was clear of the intent and type of data that would be provided in an official ORSA summary report.
Two submissions by insurers included a framework only and were deemed incomplete, making it difficult to review. Three insurer submissions omitted complete sections, making the value of the report not assessable.
Some ORSAs said “we have risk limits” but did not identify what those risk limits were, according to the subgroup. The subgroup suggests listing not all risk limits, but rather those that are key/material to the insurer.
The project involves the voluntary submission of this confidential data for regulatory review so that regulators can provide high-level, non-group specific feedback to the industry prior to the ORSA summary report effective date.
Overall, the subgroup concluded that the project provided invaluable information. It said certain components of the ORSA summary reports were very beneficial to the overall usefulness and understanding of an insurer’s enterprise risk management and that ORSA will be a valuable tool within the regulators solvency monitoring process.
In addition, it will provide pertinent information to help regulators better focus on key issues within the analysis and examination of the insurer, regulators said.
The subgroup makes conclusions and recommendations for the Financial Condition Committee’s consideration.
There will be an ORSA subgroup conference call Monday, Nov. 5. at 2 p.m. EST.