NAIC Seeks To Assist Regulatory Actuaries With ORSA Explanatory Paper
Feb 10, 2016
To assist regulatory actuaries who are reviewing Own Risk and Solvency Assessment (“ORSA”) reports, the National Association of Insurance Commissioners Casualty Actuarial and Statistical Task Force has prepared an explanatory paper with background information on the Enterprise Risk Management (“ERM”) process and what information might be included in an ORSA report.
Because the ORSA reporting process is new in the United States, the paper provides general information that is intended to be helpful in the first several years of actuarial reviews. It is not intended to cover detailed quantitative ORSA topics.
The American Academy of Actuaries is planning a Webinar on the topic of ORSA during mid-March. Click here for updates.
Among the key value areas in the regulatory surveillance process reviewed by the NAIC’s ORSA paper:
1. The source of an insurer’s own assessment of its aggregate key risks across all products and lines of business (including non-insurance risks) is not readily available elsewhere to regulators. The ORSA report provides a basis for comparison of current practices, modeling methodology, and the range of results for discussion with individual insurers. It will be a useful tool for facilitating insurer-regulator dialogue.
2. The ORSA report contains information regarding insurer strategies, risks, controls, and results that can be used to obtain a general understanding of the whole organization (including international operations). For example, information gleaned in the ORSA report on how an insurer determines its best estimate assumptions and stresses to those assumptions can help a regulator in reviewing the actuarial assumptions used in the pricing and reserving processes.
3. An ORSA report should contain a summary of all the enterprise risks, which will enable regulators–regulatory actuaries in particular–to understand the insurer’s aggregate key risks, the insurer’s approach to mitigating those risks, and the maturity of the insurer’s program relative to the industry. This understanding will supplement the information regarding risk exposures identified by the regulator through other surveillance procedures and help to drive additional risk review procedures deemed necessary to gain comfort with the insurer’s overall solvency position in light of the risks undertaken.
4. The ORSA summary report provides reasonably consistent information from all insurers in a similar time frame. Regulators can thus assess industry-wide areas that may require more (or less) attention than currently provided and aid their consideration of potential changes to the regulatory framework in order to address those developments.
The ORSA paper is attached for review.
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