NAIC’s ORSA Pilot Observations

The NAIC’s Group Solvency Issues (E) Working Group recently published it’s observations of the ORSA Summary Reports that were reviewed as part of the 2014 pilot project. The observations are intended to assist participating companies as they prepare their ORSA Summary Reports for formal submission to lead regulators.

Six key observations were noted for improving the quality of the ORSA Summary Reports:

1. Providing additional explanation of the risk management strategy in the context of the key business strategy objectives.
2. Highlighting the maturity of the ERM process and status of development by covering what has been developed and embedded in the organization and what is still in development.
3. Offering additional information and clarity regarding the legal entities included in the scope of the group ORSA.
4. Maintaining consistency between the key risks identified in Section 1, those assessed in terms of exposure in Section 2, and those quantified in terms of risk capital in Section 3.
5. Providing additional support for the methodologies and assumptions selected in Section 2 for assessing and stress testing the exposures for key risks and to quantify risk capital in Section 3.
6. Offering additional evidence regarding how the management team utilizes the information provided in the ORSA Summary Report to pursue its business strategy objectives and how the board of directors utilizes it to oversee the company.

I had the opportunity to attend the NAIC’s “2014 ORSA Pilot Key Results and Recommendations to Industry Webinar.” The webinar provided additional insights, beyond the published observations, on improvements to ORSA Summary Reports. I found the webinar to be well-designed, efficiently presented, and filled with a tremendous amount of detail. I have little doubt the audience found value in the information presented, aided by the examples referenced throughout the webinar. In my next posting, I’ll share some of what I found particularly helpful in the webinar.

In the meantime, here are some results from a couple of polls that were conducted during the webinar:

• The highest percentage of respondents (about 45%) indicated they plan to submit their first ORSA in the 4th quarter of 2015.
• The highest percentage of respondents (about 45%) indicated the most difficult area of the ORSA was “Risk Appetites, Tolerances, and Limits” in Section 1.