The NAIC Solvency Modernization Initiative taskforce's adoption of the U.S. Own Risk and Solvency Assessment (ORSA) proposal in Washington, D.C. a fortnight ago has left us with a number of big questions. One of the biggest and most difficult is: What's next?
Make no mistake; the ORSA is an evolutionary culture shift for the NAIC. It is a significant new regulatory proposal for the U.S.—and one that has the potential to impact insurance supervision. The perspectives that a well-executed ORSA can provide will be valuable to regulators, who will need to make available the time and resources to fully understand them. For insurers, the ORSA filing could provide further opportunity to engage regulators and demonstrate the utility of good capital management.
There appears to be a sincere desire among both the industry and regulators for the U.S. ORSA to work. The proposals are the product of the NAIC's exhaustive yet transparent policymaking process—and have been a genuinely collaborative effort between insurers and supervisors. The Chief Risk Officers Council has invested significant time in working with the NAIC, and other industry groups and individual firms have provided much constructive comment. This is one reason why the proposal has so much momentum at the moment—and is a good reason why the U.S. ORSA is likely to make a difference in practice.
The U.S. ORSA also is unusual in that the NAIC has a strong external motivator: the International Monetary Fund's 2014 Financial Sector Assessment Program review. Regulators were firm at NAIC's recent national meeting that the U.S. would seek credit for implementing Insurance Core Principle 16 in the 2014 review; demonstrating that the ORSA is a meaningful part of the regulatory framework will be vital in achieving this. If insurers are expected to invest the time and resources into implementing the U.S. ORSA, they will also expect it to be made a meaningful part of their supervision.
Finally, the NAIC's recognition at the national meeting that state insurance departments will need training and potentially expert resources is a positive development. The NAIC still faces challenges migrating from a heavily retrospective approach to so-called "risk focused" examinations. Because risk- and capital-management practices at major insurers are complex, it is reasonable to expect a learning curve. Suggestions at the national meeting that regulators will develop new guidance for the Financial Examiner's Handbook also indicated that the NAIC is seriously thinking about the resources it will need to implement the ORSA effectively.
Look out for our next blog, where we'll continue to discuss the new proposals.
Henry Jupe, Jean Connolly and Mary Ellen Coggins contributed to this article.
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