The NAIC’s ORSA (own risk and solvency assessment) subgroup kicked off its second feedback pilot program this week by requesting summary reports with actual data from interested insurers and groups of a certain size.
The subgroup will accept 15-20 volunteer insurers/groups for the 2013 pilot project.
The subgroup today began the request of insurers and/or groups above the exemption threshold specified in the NAIC ORSA Guidance Manual to voluntarily provide a complete ORSA summary report for regulator review.
The exemption criteria for an individual insurer are annual direct written amounting to less than $500 million; and for an insurance group, less than $1 billion.
Interested insurers and/or groups should provide an email to Danny Saenz, Texas deputy insurance commissioner, by May 31, 2013, regarding their interest.
The 2013 pilot project is expected to provide additional observations and considerations to be included in such guidance to the involved NAIC working groups.
The ORSA Summary Reports will be collected and maintained on a confidential basis under Texas law.
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 had 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).
All ORSA Summary Reports provided by Texas to subgroup members, designated NAIC staff and invited regulators will be destroyed either three days after the Financial Condition Committee receives its high-level summary report from the subgroup and/or soon after year-end 2013, whichever is later.
The first ORSA pilot project involved about 14 insurers.
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 ORSA Guidance Manual is intended to provide guidance to an insurer and/or the insurance group on reporting its own risk and solvency assessment (ORSA) as outlined within the Insurance Holding Company System Annual Registration Statement of the NAIC’s Insurance Holding Company System Regulatory Regulation.
The NAIC adopted Risk Management and Own Risk and Solvency Assessment Model Act in September 2012 in executive/plenary session. This new model law now goes to the states for legislative adoption. The ORSA filing will be required in 2015, according to a write-up by McGladrey, assurance, tax and consulting services.
States must first adopt it, and all insurers above the threshold are expected to be doing their assessments by Jan. 1, 2015.
The industry has weighed in along the way with concerns over keeping data confidential, the home country supervisor's data collection and has said the manual should recognize that insurers will not be able to predict with certainty what will occur in the future.
"There will be risks that are both material and relevant – but that were not reasonably foreseeable at the time the ORSA was conducted," stated a wide swathe of the industry, from health insurers to lifeand property casualty insurers, in a Jan. 31, 2013 letter to Texas' Saenz.