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Greetings!
The May edition of Insurance Perspectives discusses regulatory updates on corporate governance as well as ORSA implementation. We also preview upcoming speaking engagements featuring Invotex insurance professionals. As always, we welcome your feedback and invite you to share Insurance Perspectives with your colleagues and business acquaintances. If you do not currently receive our newsletter via e-mail, please subscribe at the left. Les Schott and Jim Stangroom Managing Directors, Insurance Services |
Future Oversight of Corporate Governance by Regulators Continues to Advance
As previously discussed in the December 2012 edition of Insurance Perspectives, the Corporate Governance Working Group ("CGWG") of the NAIC's Solvency Modernization Initiative (E) Task Force ("SMI") has been gaining momentum towards introducing new requirements that would expand the informational expectations relative to an insurer's corporate governance framework and oversight practices. The intent of these initiatives is to facilitate a regulator's understanding of the risks facing the companies it oversees and to enhance the regulator's capability to assess the likelihood that an individual insurer or insurer group will be positioned to minimize the impacts on their future solvency in the event those risks materialize. This momentum did not slow throughout the recent cold winter months, as the CGWG has been very active. Read on.
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ORSA Implementation Planning - The Time Is Now
The NAIC formally adopted the Own Risk and Solvency Assessment (ORSA) Model Act in 2012. The NAIC ORSA Subgroup issued a revised Guidance Manual in 2013. Individual states have started the legislative process of adopting the ORSA Model Act. Therefore, insurers should start planning for ORSA implementation sooner rather than later - the time is now. In general, ORSA applies to individual insurers whose gross premium exceeds $500 million and groups whose gross premium exceeds $1 billion. However, we believe that the boards and senior management of many insurers who desire to adopt industry best practices may consider proactively implementing ORSA-like (or "ORSA-lite") frameworks. As the name implies, ORSA involves an insurer's identification of its own unique risk and the assessment of how those risks might potentially affect an insurer's capital adequacy and prospective solvency. The NAIC Guidance Manual and Model Act require eligible companies to submit an ORSA Summary Report to the insurance commissioner. The three main sections of an ORSA Summary Report are:
- A description of the risk management framework;
- An identification and assessment of risks, including qualitative and quantitative assessments in normal and stressed environments; and
- An assessment of capital adequacy, including a prospective solvency assessment.
The ORSA is just one element of a company's overall enterprise risk management (ERM) framework. Ideally, ORSA should influence capital allocation decisions and not become just another regulatory chore. Read on.
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