NAIC Panel Seeking to Attract More Groups, Insurers in Third ORSA Pilot
January 31, 2014 by Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com
WASHINGTON – Insurers and groups interested in becoming prepared for Own Risk and Solvency Assessment Act filing requirements that will go into effect in 2015 will have at least one more chance to do so as part of a National Association of Insurance Commissioners’ 2014 pilot program.
The NAIC in 2012 approved its Own Risk and Solvency Assessment Model Act, which requires insurance companies that have annual premiums of more than $500 million and insurance groups with $1 billion to submit a report outlining their enterprise risk management processes, any risks the company or group could face in the future and whether the company has enough capital to address those risks. In March 2012, the NAIC approved an ORSA guidance manual that contains specific information reporting requirements (Best’s News Service, Sept. 13, 2012).
With initial ORSA filings not due for most states until 2015, the NAIC’s ORSA subgroup in the interim administered a pilot program to smooth out the ORSA filing process for both industry and regulators. However, participation in the pilots has been limited primarily to within lead states that have members on the subgroup panel. In 2012, only 13 insurance groups participated in the pilot, although 22 — those from 16 states — did so last year.
The panel is looking to relinquish some control of the pilot while enticing more states and companies to participate, subgroup chairman Danny Saenz said. In prior years, the pilot program saw companies file draft ORSA documentation to the subgroup, but this year the flow would go between industry participants and states that are interested in participating.
The subgroup had been using the data from the first two years to suggest improvements in what and how companies should file ORSA-related material and getting feedback on what the filing document should cover. In the third pilot, Saenz said while the subgroup would continue to provide guidance to groups and regulators, states would provide the panel only the year’s aggregate data and some observations about the process at year’s end.
For the new pilot, lead states will be asked to communicate with companies and groups to notify them of the opportunity to participate in the new pilot. “We’re trying to push this out to as many states as possible,” Saenz said.
He said the hope is that interested insurance industry members and states can coax one another into participating in the new pilot. “I don’t think we’ll get 100% [participation],” he said, but added the approach could prove more effective in reaching out to industry and getting more participants.
Saenz said the subgroup’s review of the first two pilots showed that the 2013 filings were much more robust and informative than those of the initial 2012 year, when there were 13 participants. During 2013, nearly every filing was improved and was acceptable, including those of many first-time participants, because much more interaction was occurring to address questions that arose. Only four filings proved inadequate last year, Saenz told the subgroup.
Saenz told the panel he was concerned that companies and groups submitting filings in some cases were doing so with the idea that it is a requirement for regulators, when in fact it should be viewed as a document regarding risk management that should inform a company’s board of directors.
The subgroup’s work has resulted in a template that it is sharing with companies as it reviews their ORSA submissions that allows states to grow and learn as it goes through the process of accepting ORSA filings. Saenz told Best’s News Service that although the filings will be comprehensive, they ultimately should be internal documents that differ based on what a company’s need might be.
Subgroup members demonstrated a desire to be less prescriptive as they rejected an attempt by the American Council of Life Insurers to include in the ORSA guidance manual all material risks related to captive reinsurance in a list of items to be covered in assessing group-wide capital adequacy. The subgroup indicated that groups should feel free to include mentioning captives in reports it if the risk is appropriate and to let regulators inquire about them if they were omitted unnecessarily.
