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Own Risk and Solvency Assessment (ORSA) – Key Benefits for All Insurers

The Solvency Modernization Initiative (SMI), promulgated by the National Association of Insurance Commissioners (NAIC), set out to improve upon the existing insurance regulation framework within the United States. The two key statutory reporting requirements to be approved were the:

  • Form F Enterprise Risk Report (ERR) – in effect from 2013 in some states.
  • ORSA Summary Report – in effect from 2015.

The key components of ORSA were summarized in our earlier blog.  ORSA requirements apply only to insurers with annual direct written premium plus unaffiliated assumed premium more than $500 million and insurance groups with annual direct written premium plus unaffiliated assumed premium more than $1 billion.

However, evaluating the considerations within ORSA can be valuable for any insurer. The primary components of ORSA can be segregated between the qualitative and quantitative. The qualitative component of ORSA is the risk management and ERM programs are common best practice for most companies these days – one of the key pillars to a successful organization. We have discussed various facets of ERM and risk management in many of our previous blog posts. Some of the key considerations that all companies should evaluate include:

  • Evaluation of the corporate governance frame work, from the business unit level to the board
  • Evaluation of policies and the related execution and compliance with those policies at all levels
  • Knowing the risk appetite and risk limits and ensuring that they are considered in corporate strategy and complied with for risks taken
  • Data identification, quantification, and summary to ensure that the right information is being considered and evaluated and used by key stakeholders to make key decisions.

The quantitative considerations also provide key data and information critical for a company. For example, quantitative risk assessment/economic capital modeling can provide critical insight into the company risks and capital needs. Further, internally developed models, based on internal metrics and data, can provide critical insights and the knowledge needed to make strategic decisions to management.  There are several challenges that companies might face in developing data, including proper valuation, availability of information, and quantifying risk exposures. However, developing the proper models and the ability to run various stress test scenarios can give foresight – a valuable strategic advantage.

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