
The National Association of Insurance Commissioners (NAIC) has stipulated that "the solvency framework of the U.S. system of state-based Insurance regulation has included a review of the holding company system for decades, with an emphasis placed on each insurance legal entity. In light of the 2008 financial crisis and the globalization of insurance business models, as discussed in this report, U.S. insurance regulators have begun to modify their group supervisory framework and have been increasingly involved in developing an international group supervisory framework (1)."
"To enhance the systems for group supervision, the NAIC adopted the revised Insurance Holding Company System Regulatory Act (Model #440) and the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (Model #450) in 2010. The revisions included the following: expanded ability to evaluate any entity within an insurance holding company system; enhancements to the regulator's rights to access books and records and compelling production of information; establishment of expectation of funding with regard to regulator participation in supervisory colleges; and enhancements in corporate governance, such as Board of Directors and Senior Management responsibilities. Additionally, regulators adopted an expansion to the Insurance Holding Company System Annual Registration Statement (Form B) to broaden requirements to include financial statements of all affiliates (2)."
ORSA
The Risk Management and Own Solvency and Risk Assessment requires that an Own Risk and Solvency Assessment (ORSA) Summary Report be filed in 2015 (or 2016 depending on state adoption of the Model Act) by individual U.S. (re)insurers writing more than USD500 million of annual direct written and assumed premium (and/or insurance groups writing more than USD1 billion of annual direct written and assumed premium). ORSA is expected to cause company managements to demonstrate that they have a strong enterprise risk management (ERM) framework in place, and that they are actually using it to better identify and analyze the material risks to which the company is exposed and in making decisions regarding capital and solvency. It requires an in-depth assessment of an insurer's business, its organizational structure, its risk management strategy and management's (and others') role in the process; the establishment, monitoring and enforcement of risk appetite, tolerances and limits; the assessment of its risk exposures in both normal and stressed environments; and the determination of the level of financial resources needed to manage its current business over the longer business cycle.
Section IV of this report includes discussion of these and other issues to demonstrate how a properly structured ORSA can provide tremendous benefits to (re)insurers. Within an organization, the ORSA facilitates the establishment and maintenance of an effective ERM framework that minimizes the effects of risk on a company's capital and earnings. The assessment is also effective in communications with shareholders, regulators and rating agencies. This report will also compare some of the requirements in the United States with others territories - including Solvency II in the European Union. One key point is that through ORSA, U.S. regulators will be able to enlarge their existing assessment of group capital via analysis of a company's own assessment of group capital needs.
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Notes:
1. NAIC: CIPR Newsletter, Insurance Group Supervision, April 2012.
2. NAIC website on Status of Group Supervision.