Monday, 17 October 2011

NAIC, ORSA, ERM and SRQ - Acronym day!

Saw this nice piece from Towers Watson on ERM developments Stateside (I had blogged on this from an ORSA perspective a couple of weeks ago). The pressure from the AM Best ratings agency seems to be pretty intense to this regard, and indeed Towers Watson's article here highlights what AM Best consider "leading" and "lagging" practices.

"Leading" practices have all the hallmarks of the IAIS/Solvency II world that we all know and love ("tolerance", "appetite", "risk-adjusted return", "modelling used in strategic decision making" etc etc). What is more enlightening is the section on "lagging" practices, as it seems pretty bold to say that by not adhering to the AM Best standards you are a laggard.

However, the stats are pretty sobering (and mouthwatering if you are consulting over there!). 90% of respondents' risk tolerance definitions were "too broad", 12% had no ERM Committee/CRO and 72% do not use internal models.

Towers (who have issued guidance on the 2010 iteration) go as far as to say that the new ERM section on Best's SRQ (Supplementary Ratings Questionnaire) will '...become more influential on ratings outcomes' and that this evolution will compel insurers to 'stay ahead of their peers and Best's evolving ERM criteria'. How the SRQ obligations marry into the ORSA guidance due out soon is another thing, but fascinating times ahead for the North Americans...

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