Enterprise Risk Management and the
Own Risk Solvency Assessment Act
Michelle M. Rogers, JD
Director of Financial and Regulatory Policy
National Association of Mutual Insurance Companies
Discussion Topics
Enterprise Risk Management
ORSA
Enterprise Risk Reports
International Connection
Enterprise Risk Management
• ERM is a forward-looking management tool
• ERM involves enterprise-level risk appetites
• ERM helps determine tolerances for each risk
category
• ERM includes risk identification, assessment,
management, monitoring and reporting
Enterprise Risk Management
• ERM evaluates options for addressing the risks
• ERM does not anticipate elimination of risk – but
focuses on risk management and controls
• ERM can help determine capital resources needed
• ERM should be integrated into all enterprise
decision-making
ORSA – NAIC Model Act and Regulatory Tools
• Model Act - In September 2012, NAIC adopted the
Risk Management Own Risk and Solvency
Assessment Model Act
• Guidance Manual - Additional details for insurers
• Pilot Feedback -- Three years of pilot information
and feedback
• NAIC ORSA Analysis and Examination Handbooks
• NAIC ORSA Actuarial Preparation
ORSA – Guidance Manual
• Annual Summary Report on ORSA
• Exemption from Requirement
• Parts of the Annual Summary Report:
Description of their Risk Management Framework
Assessment of Risk Exposures
Group Assessment of Risk Capital and Prospective
Solvency Assessment
ORSA – Guidance Manual Part 1
Description of their Risk Management Framework
Governance/risk culture
Identification/prioritization
Appetite/tolerance
Management/controls
Reporting/communication
ORSA – Guidance Manual Part 2
Assessment of Risk Exposures
Quantitative and qualitative assessment of the risk
exposure for each material risk category, under both
stressed and normal conditions
Category examples include: Underwriting Risk, Legal
and Compliance Risk, Credit Risk, Market Risk,
Liquidity Risk, and Operational Risk
This analysis should be consistent with the way the
business is managed – group or legal entity
The risk assessment should include the impact on
capital
ORSA – Guidance Manual Part 3
Group Assessment of Risk Capital
Available capital to be compared to risks that
could affect the enterprise
Share key methodologies and assumptions
Intended to help regulator understand capital
adequacy
ORSA – Guidance Manual Part 3
Prospective Solvency Assessment
Robust capital forecasting that aligns the multiyear business plan with the stated risk appetite
If capital insufficient, provide description of
management tools to address
ORSA – Pilot Feedback and Observations
• All feedback and observations are “suggested” not “required”
• The ORSA should be based on report provided to Board of
Directors
• The insurer/group should inform lead state regulator of what
time of year they expect to file their ORSA
• The Observations include:
Format suggestions
Information preferences
Discussions and explanations recommended in ORSA
Summary Report
ORSA – Other Activity at NAIC
• NAIC Risk Focused Surveillance WG finalizing the
details of the handbooks for analysts and examiners
• NAIC ORSA Actuarial Subgroup
ORSA
Enterprise Risk Report - ERR
• Registration Requirement under the Model Holding Company Act
2010 – law in 37 states
• All sizes of holding companies must report under the model language
 Proportionality or size threshold in 11 states
 Holding companies can apply for a waiver in most states
• Requires completion of Form F and filing with the lead state
commissioner for the holding company
• Goal is to obtain reports of Material Adverse Risks in certain
categories
Enterprise Risk Report – Form F
• Completed by the ultimate controlling person for the holding company to
the best of its knowledge and belief including:
 Material developments in strategy, internal audits, compliance, risk
management affecting the holding company system
 Planned acquisition or disposal of insurance entities
 Changes in shareholders exceeding 10% of the voting securities
 Developments in investigations, regulatory actions or litigation
 Business plan and summarized strategies for next 12 months
 Material concerns raised by Supervisory College
 Holding company capital resources
 Rating Agency discussions or movements
 Corporate or parental guarantees
 Identification of any material development that could adversely
affect the holding company
Enterprise Risk Report
• If there is no information – must submit a statement affirming no
material adverse enterprise risks
• Some indication that ERR will not be required from companies filing
the ORSA
• Differences between ERR and ORSA
• Only holding companies
• Only material adverse risks
• Many states will require ERR in 2014 – ORSA in 2015
Holding Company Act
International Connection – “Regulatory” Structure
G-20 Countries
IMF
OECD
Economic
Development
Financial Stability Board
International Standard Setters
Basel
IOSC
IAIS
Committee
Insurance
Banking
Securities
IASB
Accounting
International Connection – Pressure on U.S.
International
U.S. Counterparts
Insurance
IAIS
NAIC
Banking
BASEL
FED
Accounting
IASB
FASB
International Connection – NAIC/State Activity
• 2010 - Revisions to Group Supervision – Supervisory
Colleges
• 2011 - Revisions to Reinsurance Collateral
Requirements
• 2012 - Creation of U.S. Own Risk Solvency
Assessment Requirements (ORSA)
• Work continues on Corporate Governance and
Capital Adequacy
International Connection – Federal Activity
• FSOC - IAIS: Designation of Systemically Important
Financial Institutions (SIFI -GSII) – AIG, Prudential,
maybe MetLife
• Fed - IAIS: Group Wide Supervision, SIFI-GSII
Supervision, Capital Standards and Stress Testing
• FDIC - FSB: Resolution Authority
International Connection – International Activity
• International Association of Insurance Supervisors
▫ ComFrame
▫ Group Supervision
▫ Global Group Capital Requirements
• Financial Stability Board
• International Financial Accounting Standards Board
• EU-US Dialogue
International Connection – Difficulties for U.S.
• Legal Entity vs. Group Supervision
• Rules-based vs. Principle-based
• Nominal Value vs. Fair Value
• 50 State Laws vs. National Law
• Regulation of Conduct vs. Regulation of
Capital/Solvency
• Policyholder Focus vs. Creditor/Investor Focus
QUESTIONS?