April 2013

U.S. Own Risk and Solvency Assessment (ORSA) Initiative – Quarterly Update

Maximize Value and Address the Requirements with Consulting Services from ParenteBeard LLC

On a teleconference on March 25, 2022 the NAIC’s Own Risk and Solvency Assessment (ORSA) (E) Subgroup adopted a revised ORSA Guidance Manual, with conforming changes to be made to substitute the notion of “group assessment of risk capital” for that of “group risk capital.”  The Subgroup also discussed the 2013 ORSA Feedback Pilot Project and confidentiality agreements.

Some other changes to note include clarifying and updating wording to the Section 2 Requirements – Insurers Assessment of Risk Exposures (Section 2). The clarifications ensure that descriptions, explanations and assessment of risks are that of only “material and relevant” risks. In addition, the updates clarified that the ORSA Summary Report information for Section 2 should be a “high level summary.”

The following is an overall summary of the significant changes:

  • Added language that the insurer should identify the basis of accounting for the ORSA Summary Report (e.g., GAAP, SAP or IFRS).
  • Added language that the insurer should explain the scope of the ORSA such that the ORSA Summary Report identifies which entities within the group are included in the ORSA Summary Report, possibly accompanied by an organizational chart.
  • Added language that the insurer should include a summary of material changes to the ORSA from the prior year.
  • Added language that the insurer should provide a comparative view of group capital from the prior year.
  • Included changes to synchronize guidance in the Manual with the requirements in the adopted Risk Management and Own Risk and Solvency Assessment Model Act (Model #505).
  • Added a glossary of terms in the Appendix.
  • Included edits that are considered general clean-up of the technical language throughout the Manual, as well as minor modifications to clarify the intent.

ParenteBeard has been on the forefront of the ORSA regulatory initiative, attending National Association of Insurance Commissioners (NAIC) meetings, discussing requirements with state insurance department personnel and obtaining feedback from multiple insurers to ensure our firm can maximize our value added services to help affected insurers prepare for the new requirement. Our team members also provide consulting services to multiple state insurance departments and have valuable insight into regulator expectations.

What is ORSA?

The Own Risk and Solvency Assessment (ORSA) is becoming a key part of the regulatory framework for U.S. insurers. The NAIC proposed expectations for the assessment and resulting ORSA filing in its draft ORSA Guidance Manual. The ORSA Guidance Manual states that the ORSA is a component of the insurer’s Enterprise Risk Management (ERM) framework, is a confidential internal assessment appropriate to the nature, scale and complexity of an insurer conducted by that insurer of the material and relevant risks identified by the insurer associated with an insurer’s current business plan and the sufficiency of capital resources to support those risks.

The ORSA has two primary goals:

  • To foster an effective level of ERM at all insurers, through which each insurer identifies, assesses, monitors, prioritizes and reports on its material and relevant risks identified by the insurer, using techniques that are appropriate to the nature, scale and complexity of the insurer’s risks, in a manner that is adequate to support risk and capital decisions; and
  • To provide a group-level perspective on risk and capital, as a supplement to the existing legal entity view.

ORSA Applicability

  • The individual insurer’s annual direct written and unaffiliated assumed premium, including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, is greater than $500,000,000; and,
  •  If the insurer is a member of an insurance group and the insurance group’s (all insurance legal entities within the group) annual direct written and unaffiliated assumed premium, including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, is greater than $1,000,000,000.

General and Filing Requirements

An insurer who is subject to the ORSA requirement will be expected to regularly conduct an ORSA and provide a high-level ORSA Summary Report annually to the domiciliary regulator, if requested.

The ORSA Summary Report should discuss three major areas, which will be referred to as the following sections:

  • Section 1 – Description of the Insurer’s Risk Management Framework
  • Section 2 – Insurer’s Assessment of Risk Exposure
  • Section 3 – Group Risk Capital and Prospective Solvency Assessment

The NAIC updated that the ORSA requirement has an effective date as of January 1, 2022, with the first Summary Report filing sometime in 2015, a date yet to be determined. 

Stay Ahead of the Requirement with Regulatory, ERM and Actuarial Consulting Services

ParenteBeard and our strategic actuarial consulting partners will help insurers stay ahead of the ORSA requirement. We offer a collaborative approach to ensure your resources are maximized and the process is streamlined and efficient.

ORSA Requirement

Services from ParenteBeard and Our Strategic Partnerships with Actuarial Consulting Firms

Section 1 – Description of the Insurer’s Risk Management Framework

Enterprise Risk Management assessment

ERM framework identification and implementation strategies customized to your organization’s culture and size

Project management to help ensure transition of your current risk framework to meet the ORSA filing requirements

Documentation of the insurance company’s risk management policy

Provide presentations to board of directors and applicable committees of the board

Section 2 – Insurer’s Assessment of Risk Exposure

Mapping of risk management framework to management’s assessment of risk exposure

Assistance in identification of notional amounts and baseline for key identified risks

Economic  capital modeling

Stress testing and reverse stress testing of material and relevant risks 

Section 3 – Group Risk Capital and Prospective Solvency Assessment

Project management and documentation of a high level summary of management’s quantitative and/or qualitative assessments of risk exposure in both normal and stressed environments for each material risk category in Section 1

Assistance in documenting the qualitative elements of the company’s risk management policies and the quantitative elements to determine the level of financial resources needed to run the business over the next 3-5 years

Provide strategies to identify and document prospective risks

For more information on the ORSA or the consulting services we offer, please contact Ken Hugendubler or John Romano of ParenteBeard.

Ken Hugendubler
Insurance Industry Practice Leader
Ken.Hugendubler@ParenteBeard.com | 215.972.2330              

John Romano
Senior Manager
John.Romano@ParenteBeard.com | 215.972.2277  

ParenteBeard LLC: Confidence Through Clarity