Posts Tagged ‘ORSA’
A.M. Best’s More Transparent Ratings Criteria Provide Benefits to Insurers That Proactively “Own Their Ratings”
Eric Simpson, Managing Director
Maintaining or improving ratings is a priority for most insurers. This can be challenging amid increasing demands for companies to “own their risk” (Own Risk and Solvency Assessment “ORSA”) in an environment of evolving rating agency requirements, including A.M. Best’s (Best) proposed ratings methodology and Stochastic-based Best’s Capital Adequacy Ratio (BCAR) criteria.
The concept of equivalence under Solvency II determines to what extent (re)insurance entities outside Europe can operate within the European Union (EU) while relying solely on their local solvency standards. The ability to operate in the EU is a significant issue that impacts multinational (re)insurance companies and groups.
Here we present GC Capital Ideas’ stories on analyses of enterprise risk management disclosures. A 2014 study updated the analysis done in 2009, one of our most popular stories. The full briefings are attached.
Here we review GC Capital Ideas posts on the benefits of enterprise risk management practices in supporting (re)insurance capital and regulatory decision making.
Here we review recent GC Capital Ideas posts examining the benefits to (re)insurers adopting Own Risk and Solvency Assessment (ORSA) standards.
In realizing the goal of profitable growth, (re)insurers require a trusted partner to help them manage a rapidly evolving regulatory and rating agency environment.
The regulatory issues facing insurers and reinsurers today often require highly specialized expertise that may not be readily accessible to clients - from taking credit for reinsurance on financial statements to complying with regulatory requirements in contract wordings to shepherding new products through the approval process. Guy Carpenter Strategic Advisory℠ has a team of professionals whose deep expertise and knowledge can help companies navigate the regulatory realm.
Addressing Own Risk and Solvency Assessment/Enterprise Risk Management and Insurance Capital Standard Globally
In accordance with the objectives of the National Association of Insurance Commissioners (NAIC) and European Insurance and Occupational Pension Authority (EIOPA), Own Risk and Solvency Assessment (ORSA) is “people and risk-centric,” primarily employing a principles-based approach, as opposed to a rules-based approach. This means that decisions on matters related to risks are largely based on the judgment of individuals relying on underlying facts, as opposed to decisions being made mostly by following intricate sets of rules. This is similar to the principles-based approach taken by International Financial Reporting Standards (IFRS). Although the calculation of the Solvency Capital Requirements (SCR) under Solvency II is rules based, like Insurance Capital Standard (ICS), Solvency II can be a “one size fits all” rules-based approach to capital, especially if the standard formula is used. (Re)insurers will need to find a way to incorporate ICS into their ORSA processes and the vehicle to accomplish this may be through the internal model.
(Re)insurers that are required to implement Own Risk and Solvency Assessment (ORSA), or a similar framework such as Internal Capital Adequacy Assessment Process (ICAAP), may benefit by adopting a strong ORSA/enterprise risk management (ERM) framework. One such framework that could work on a global basis is illustrated below.
Own Risk and Solvency Assessment (ORSA) was first introduced as a regulatory requirement as a result of Solvency II. (Re)insurers would be wise to take note of the many similarities between Solvency II and the National Association of Insurance Commissioners’ (NAIC) ORSA and, where possible, avoid reinventing the wheel when trying to implement them. Now, and especially with the introduction of the Insurance Capital Standard (ICS), it is increasingly important for (re)insurers to avoid unnecessary, redundant and duplicative activity in the attainment of regulatory satisfaction by striving for a uniform framework to establish risk management and controls, corporate governance, transparency and disclosures across borders. In so doing, (re)insurers will gain optimum value from their ORSA.