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HSS ORSA

In 2012, the National Association of Insurance Commissioners issued a directive that became Model Act #505, establishing ORSA ("Own Risk & Solvency Assessment") as the compliance vehicle for insurance companies to adopt enterprise risk management as a tool to ensure sound and prudent management practices.

 

Rather than require a highly structured reporting process, ORSA is intended for each carrier to conduct a confidential assessment of its ERM framework within guidance provided by the NAIC. Insurers will be required to prepare an annual report on their ERM plan and current and future solvency positions.

 

The ORSA process is to become effective January 1, 2015 for companies with more than $500 million in gross written premium and groups with more than $1 billion in gross written premium. ORSA continues to evolve and is expected to have a broader and deeper reach in the future, as it matures with both regulators and carriers.

 

The ORSA requires an insurer to consider its approach towards managing risk:

  • Clear agreement of how much risk the company is willing to take

  • A comprehensive understanding of the risks that the company faces

  • Effective functional arrangements to manage, control and monitor risks 

  • Clearly defined roles, responsibilities and accountabilities

 

Some insurers will be challenged in working towards aligning ERM with their risk profiles & preparing for ORSA.

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The ORSA requires a 3-section structure for the ORSA Summary Report:

 

Section 1 – Description of the insurer’s risk management framework including:

  • Risk Culture and Governance

  • Risk Identification and Prioritization

  • Risk Appetite, Tolerances and Limits

  • Risk Management and Controls

  • Risk Reporting and Communication

 

Section 2 – Insurer’s quantitative & qualitative assessment of risk exposures to include:

  • Details of risks identified, measurement approaches used and assumptions

  • Quantification of risk for each major risk category

  • Outcomes of plausible adverse scenarios

  • The impact of stressed environments on available capital, considering multiple capital viewpoints if relevant (e.g. regulatory, rating agency)

 

Section 3 – Group risk capital and prospective solvency assessment

  • Definition of solvency,  accounting or valuation regime

  • Time horizon of risk exposure

  • Risks modeled

  • Quantification method

  • Measurement metric

  • Target level of capital

  • Aggregation and diversification

 

HSS can assist carriers in crafting their ORSA, including using its team of regulatory experienced advisors to assure compliance, as well as evaluating and/or updating an existing ORSA.

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