07 June 2013

Risk.net: AIA cautions NAIC on US ORSA guidance

The American Insurance Association (AIA) is warning that the US Own Risk and Solvency Assessment (ORSA) must not turn into a "check-box" exercise, as insurers begin to take part in a second test run of the assessment.

21 US insurers have volunteered to take part in the National Association of Insurance Supervisors' (NAIC) ORSA pilot project. This second pilot project aims to help state regulators improve their guidance to firms on the assessment. Following last year's pilot, the NAIC asked firms to include more detail on their use of capital models and accounting methods in their ORSA submissions.

But there are concerns that any revised ORSA guidance will be too prescriptive and undermine the usefulness of the report as a risk management tool unique to each insurer. Phillip Carson, senior counsel at the AIA in Washington, DC, says: "A mentality may be developing of a check-the-box approach, [saying] you need to have X, Y, Z". The AIA, adds Carson, has been "struggling" with regulators to prevent the guidance manual becoming too prescriptive.

For the latest pilot project, the NAIC recommends firms provide extra detail on the models used to generate risk capital figures, identify risk limits clearly, give an explanation of the basis for their chosen accounting method and provide a comparative view of group risk capital from the prior year.

The NAIC insists that the feedback from last year's pilot and current guidance reflect the need for supervisors to understand better firms' risk management processes and not a desire to make the ORSA more prescriptive. Danny Saenz, deputy commissioner at the Texas Department of Insurance in Austin and chair of the committee overseeing the ORSA, says the latest recommendations on group risk capital are to help compare results. Saenz emphasises that both the previous and current pilot projects are a "two-way learning process" and will help in the development of the final ORSA guidance. The NAIC also hopes to use the results to inform the evolution of the US's risk-based capital regime through its Solvency Modernisation Initiative (SMI), he says.

Submissions for the second pilot project are due on September 20, 2013. The first official ORSA report is due on January 1, 2015. The NAIC estimates that the US insurance industry is "a third of the way there" in terms of its preparedness for ORSA reporting and that some firms "still have a way to go", according to Saenz.

Full article (Risk.net subscription required)

© Risk.net