© 2015 National Association of Insurance Commissioners

Industry’s Tolerance of Stresses Industry’s Articulation of their

Governance

Assist Regulators with

Risk-Focused Exam

Assist Regulators with

Risk-Focused Analysis

Improve

Solvency Regulation

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© 2015 National Association of Insurance Commissioners

G-20

Worldwide Industry’s Articulation of

their Governance

Solvency II

Insurance Core Principle (ICP) 16 –

Enterprise Risk Management

Financial Sector

Assessment Program

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© 2015 National Association of Insurance Commissioners

2 Primary Goals

Effective level of Insurer's Enterprise Risk Management

Provide a group-level perspective on risk and capital

OWN Solvency ERM Component

> $500 M individual > $1 Billion Group

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© 2015 National Association of Insurance Commissioners

Framework

• Maintain a risk

management

framework

ORSA

Assessment

• Complete an

Own Risk and

Solvency

Assessment

ORSA Report

• File an ORSA

Summary

Report with

the insurance

commissioner

Effective date as of January 1, 2015, with the first Summary Report filing sometime in 2015, as states work with the insurer for the states that have adopted 1/1/15 implementation date.

Adopted by NAIC Sept. 2012

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AR

© 2015 National Association of Insurance Commissioners

2012 2013 2014

Number of States Participating 12 16 26

Estimated Number of ORSA Reported Expected to

be Filed to Participating States

134 167 210

% of Total Estimated ORSA Reports Expected to

be Filed

50% 64% 77%

Number of Insurer/Groups Participating 14 22 28

Participants covered Life, P&C, Health & Title

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2014 Pilot expected to be closed by May

© 2015 National Association of Insurance Commissioners

Prepare to discuss contents with regulator

Report information consistent with BOD reporting

Control flows within the organization

Use attachments to illustrate actual processes

Provide detail on actual risk limits

Provide heat maps/risk ranking

Combined stress scenarios & reverse stress testing

Discuss increasing risks and future plans

More discussion of risk mitigation

Provide most current data for available and required capital

Provide comparative view of data over years

Discuss diversification benefit Increase discussion regarding

compensation Discuss reasons for changing

limits and tolerances Discussion of compensation tie

to ERM

General Feedback to the Industry

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© 2015 National Association of Insurance Commissioners

◦ Very useful exercise for both companies and state DoI

◦ Maturity of report reflective of maturity of ERM framework in the company

◦ With exceptions, life industry appears to be more ORSA-ready and health industry to be less ORSA-ready

◦ Section 1 is the best of the 3 sections and section 3 is the one requiring more work

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© 2015 National Association of Insurance Commissioners

Presentation:

How much to disclose in the report

Content:

Alignment of risk and business strategy

Risk appetite statement at enterprise level

Risk thresholds and limits for each material risk

Support to choice of metric to quantify the solvency capital

Quantification of solvency capital for some specific risks: operational, emerging

Stress tests

Prospective risk and solvency capital assessment

Use test – ie how the ORSA process is used to support management decisions

Roll-out of ORSA processes into all functions due to immaturity of ORSA processes

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© 2015 National Association of Insurance Commissioners

Scope out their first years’ reviews: breadth and depth

Use of foreign ORSAs for US regulatory purposes

Use of group ORSA by non-lead states

Training all staff – NAIC ORSA Training has been launched and is being rolled out nationally

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Lead State generally expected to perform review and assessment ◦ Non-Lead States place significant reliance on Lead

State

Regulatory review guidance should NOT be used to dictate the insurers report ◦ However, regulators need to understand report to

adjust solvency monitoring accordingly

Each section (I-III of ORSA Report) informative to the others

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© 2015 National Association of Insurance Commissioners

NAIC ORSA Guidance Manual (July 2014 version) http://www.naic.org/store/free/ORSA_manual.pdf

RMORSA Model Act #505 (adopted on September 6th, 2012) http://www.naic.org/documents/committees_e_risk_management_orsa_ad

opted_120906.pdf SMI dashboard, showing the status of adoption by the individual states

of a number of model acts as part of the Solvency Modernization Initiative (SMI), including the RMORSA Model Act #505 (on the second page), as of February 2, 2015:

http://www.naic.org/documents/committees_e_related_smi_dashboard.pdf?123

Latest draft guidance for financial analysts in the state Departments of Insurance on how to conduct analysis procedures on the ORSA reports:

http://www.naic.org/documents/committees_e_examover_fahwg_exposure_fin_analysis_handbook_prop_rev_form_draft.pdf (starts on page 171)

Latest draft guidance for financial examiners in the state Departments of Insurance on how to conduct an examination of the ORSA reports:

http://www.naic.org/documents/committees_e_examover_fehtg_exposure_orsa_guidance_rfswg.pdf

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© 2015 National Association of Insurance Commissioners