Wednesday, 9 November 2011

ORSA - Stateside view from NAIC's "ORSA manual"

Having already dropped a few words down on EIOPA's new ORSA consultation for us Solvency II folk, I also spotted that the guys in the States have also made a few moves with regards to their ORSA Manual (from p12 of this NAIC bundle from their meet up the other day).

What had jumped out at me earlier last week was this article quoting AIA's assistant general counsel which very much framed the US ORSA as a periodic filing requirement with which he had "privacy concerns", voiced that it “should not be compulsively adopted”, and was very much a poor cousin to the existing framework.

This of course flies in the face of the ambitions of the Solvency II ORSA which, while clearly creates a regulatory filing requirement, is intended to demonstrably drive the decision making of the undertaking.

Having had a leaf through the ORSA Manual, a few things jumped out;
  • Primary goals are different to the Solvency II version (though both drink from the IAIS ERM ICP cup, the US ORSA stays on message with ERM effectiveness).
  • Not compulsory, rather a requirement to be subjected to (subject to minimum premium income limit of $0.5bn as entity, or $1bn as a group)
  • Can also be imposed on entities who would be considered on the "ladder of intervention" in Solvency II-speak
  • Allows for cross-referencing documents, rather than summarising within an ORSA report (which gives it the look of a Pillar 3 document on Solvency II side)
  • Potential option to satisfy US regulatory demands for ORSA by using any which are produced for "non-US jurisdictions" - see, Solvency II preparation is not a waste of energy for any groups with subsidiaries over there after all!
  • Great comment that, wishing to use IAIS ICPs to assess the quality of non-US ORSAs, that "one of the NAIC's goals is to avoid creating duplicative regulatory requirements for internationally active insurers".
  • Very concise prescriptive summaries of content - agin, they veer towards Pillar 3 requirements over here (SFCR in particular, though I haven't been through today's Pillar 3 consultations yet, so they may have changed!), but these are still very useful for people on both sides of the Atlantic.
  • They go with Credit, Liquidity, Operational, Market and Underwriting risks as main "material risk categories". I'll come on to the fantastic paper on risk classification I recently attended the public rollout of later, but it has a lot of relevance to how one might approach this aspect of the proposed ORSA, including avoiding any double coverage.
  • No prescribed suite of stresses, such as for the SCR standard formula - this seems to imply that "internal models" are either obligatory, or are considered to be whatever is in place currently (i.e don't need a phenomenal amount of resource to validate to the authorities). The regulators therefore are able to "provide input" into model component calibration if they don't like what is presented via ORSA.
Would love to hear from anyone over in the States to see how this is going down industry-wide, as I can't quite gauge how much of an additional imposition this is to business as usual!

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