A.M. Best Special Report: Own Risk and Solvency Assessment (ORSA) Considerations in the A.M. Best Rating Process

OLDWICK, N.J.--()--A.M. Best has found that approximately 200 rating units, which may be composed of either one company or a group of affiliate companies, will be required to submit an Own Risk and Solvency Assessment (ORSA) Summary Report to their regulators in 2015, according to a new special report.

The Best’s Special Report, titled, “Own Risk and Solvency Assessment (ORSA) Considerations in the A.M. Best Rating Process,” states that while these rating units represent just 16% of the total entities rated by A.M. Best, they comprise the majority of premiums in their respective segments. The Risk Management and Own Risk and Solvency Assessment (RMORSA) Model Act was adopted by the National Association of Insurance Commissioners (NAIC) in 2012. The Model Act provides for ORSA Summary Reports to be filed by individual insurance companies with more than $500 million in gross written premiums (GWP) or by insurance groups with more than $1 billion in GWP. At their discretion, regulators also may require companies falling outside the guidelines to submit an ORSA report.

The ORSA reports are to include, at a minimum, commentary on three topics:

  • A description of the insurer’s risk management framework;
  • An assessment of the company’s risk exposure; and
  • Group assessment of risk capital and prospective solvency assessment.

The report also provides an update on A.M. Best’s view of ORSA and its potential use in the ratings process, based on A.M. Best’s review of ORSA preparations with those companies expected to comply with the Model Act in 2015 and in consideration of the company’s long-standing assessment of enterprise risk management (ERM) as part of the rating process for all insurers. Additionally, a number of companies participated in pilot programs with their regulators and provided additional feedback on the process. A.M. Best’s discussions with insurers beneath the ORSA reporting threshold will remain focused on existing ERM capabilities.

Given that most companies required to submit an ORSA in 2015 have long-standing, deeply-rooted ERM processes already in place, it is not A.M. Best’s expectation that ORSA will identify significant new risks or capital management issues for most companies. However, the process could bring greater focus to existing ERM efforts, provide greater insight into capital management and ensure that a top-down, bottom-up risk culture has been established.

While A.M. Best anticipates that the initial ORSA implementation may present challenges for some insurers given limited resources and the open-ended nature of the current guidelines, the long-term benefits may outweigh the short-term challenges. As the ORSA reporting process evolves over time, a key benefit to the industry may be the development of “best practices” that enable those companies that are not currently subject to ORSA filing requirements to enhance their risk and capital management processes.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=234404.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Gordon McLean
Senior Financial Analyst–P/C
908-439-2200, ext. 5304
gordon.mclean@ambest.com
or
Richard McMillan
Managing Senior Financial Analyst–L/H
908-439-2200, ext. 5615
richard.mcmillan@ambest.com
or
Christopher Sharkey
Manager, Public Relations
908-439-2200, ext. 5159
christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com

Contacts

A.M. Best
Gordon McLean
Senior Financial Analyst–P/C
908-439-2200, ext. 5304
gordon.mclean@ambest.com
or
Richard McMillan
Managing Senior Financial Analyst–L/H
908-439-2200, ext. 5615
richard.mcmillan@ambest.com
or
Christopher Sharkey
Manager, Public Relations
908-439-2200, ext. 5159
christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
james.peavy@ambest.com