The US Orsa is intended to be a principle-based process, allowing insurers to conduct an assessment "appropriate to the nature, scale and complexity" of the firm, in the words of the model law. But a wave of recommendations handed down by the NAIC following Orsa pilot projects in the past two years has been interpreted in some quarters as an attempt to standardise the process. In 2013, the NAIC made 29 recommendations on how firms should compile their Orsa reports, for example.

 

A third pilot project is currently under way, in which 30 insurance groups and the 14 states that act as their lead regulators are participating. Insurers were asked to submit their summary reports from July 1 onwards.

 

"These were packaged as suggestions," says Bill Spinard, New York City-based co-leader of EY's US insurance risk advisory practice, who sees a gulf widening between firms' understanding of what is required of them and regulators' approaches to examining the completed Orsa reports. "Some of [the suggestions] were straightforward, others complex, like asking for stress tests under different economic and capital scenarios, double stress tests, and so on."

 

Firms are required to submit an Orsa to their supervisor annually from January 1, 2015 following an NAIC model law in September 2012, which is currently being adopted by individual states. The Orsa itself is a firm's self-assessment of the capital underpinning its risks, with the aim of promoting awareness of financial risk at the management level, including on the board of directors.

Orsa reports will be assessed by the regulator of the state in which the insurer is domiciled. These regulators are encouraged to examine each Orsa with due sensitivity to the individual business. The NAIC has drafted a guidance manual to aid this process, which Spinard claims "may be considered prescriptive".

 

The fear is that firms that compile an Orsa without following all the recommendations passed down by the NAIC will be found wanting by examiners using the guidance manual to assess their completeness.

 

The third Orsa pilot project closes on September 30. In December, participating regulators and NAIC staff will review the submitted reports. The NAIC will then issue formal feedback to the industry.

 

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