On September 12, 2012, the NAIC adopted the “Risk Management and Own Risk Solvency Assessment Model Act.” This Model would require that insurers maintain a “risk management framework” to assist in assessing, monitoring, managing and reporting on risk. The Model also would require insurers to complete an “Own Risk and Solvency Assessment” (ORSA) and mandates the annual filing of a confidential ORSA Summary Report in accordance with an “ORSA Guidance Manual.”
Per the Guidance Manual, the ORSA Summary Report should include a description of the insurer’s risk management framework, an assessment of its risk exposure, and a group risk capital and prospective solvency assessment, addressing these elements from both a qualitative and a quantitative perspective. Ultimately, this information is intended to assist regulators in forming subjective assessments of the quality of the insurer’s risk and capital management. Evaluating and documenting an insurer’s own risk profile for this purpose will likely be as much an art as a science.