The National Association of Insurance Commissioners’ (NAIC’s) Own Risk and Solvency Assessment (ORSA) goes into effect on January 1, 2015. Currently, many (re)insurers are in the process of developing and implementing their ORSA plans and approaches to the new regulation. They may be challenged over how much work has yet to be done and how best to do it. However, while some of the challenges are understandable, through “Business Management Integration” (BMI) there is an easier and more reliable way to approach this new regulation.
Posts Tagged ‘solvency’
In Figure 1, RBC Ratio is defined as the ratio of aggregate Total Adjusted Capital to Authorized Control Level RBC for each of 111 combined insurance groups. Plotted against BCAR, there is clearly a strong correlation between the measures, though the relationship is not perfect.
When banks in Europe and the United States become unable to honor their financial obligations in 2007 and 2008, governments bailed them out. But why? The standard answer is that politicians faced a terrible choice. They had to choose between saving insolvent banks largely “as is” in the short-term, or unleashing economic chaos. Recovery and Resolutions Plans (RRPs) are supposed to stop such a dilemma arising again.
Micah Woolstenhulme, Senior Vice President
At the 2012 Casualty Actuarial Society (CAS) Annual Meeting in Orlando, Florida, the general session, “Economic Capital Modeling for ORSA in the U.S. Property and Casualty (P&C) Industry: The Stakeholders Convene,” afforded participants a novel opportunity to satisfy their continuing education credits. In that session, attendees hypothetically viewed the P&C industry as a single large company. Audience members were shareholders and session panelists adopted various executive and leadership roles in the company.
Guy Carpenter hosted “Volatility - Opportunity or Threat?” the Reinsurance Symposium held in Baden-Baden on October 21. The event examined how volatility is viewed within the insurance and reinsurance sectors, particularly from a financial perspective, and explored the potential which market turbulence can generate.
Lloyd’s has a well-developed risk management framework. A number of committees provide oversight for the Market and detail what is required of members in terms of their own risk management. Lloyd’s is required to conduct an ICA for the Market as a whole, using the normal FSA risk categories to examine risks that are not captured within syndicate ICAs. This process aims to determine the level of capital required to be held centrally that can withstand a 1-in-200 year event over a one-year time frame. The Lloyd’s ICA is an important driver for the Council in determining the optimum level of central assets. Another key driver is the expectation that the costs of mutuality will be less than 1 percent of members’ GWP across the insurance cycle. The central assets target and the level of contributions are regularly reviewed in light of the Market’s current financial position and forecasted needs.
Industry Good Practice for Catastophe Modeling & Solvency II – A Perfect Opportunity for Review: Part II, Operational Principles and Technical Considerations
Section 2 - Operational Principles
The message that data quality is vital to catastrophe modeling comes through loud and clear in the opening of Section 2. The old adage “garbage in, garbage out” is much abused, but in catastrophe modeling it has certainly earned a place. Companies should be cognizant of the impact that data manipulation has on the results produced by models. As a result, sensitivity testing should become much more prominent. Data should be tested for accuracy, completeness and appropriateness, along with a wide range of assessments employed in terms of spatial, temporal and thematic qualities. Missing and incorrect data should be accounted for through appropriate “grossing up” techniques, which should be documented in a formal data policy. Much of this will be second nature to firms that have used catastrophe models for any period of time, but we believe there will be a few “root and branch” reviews of systems and data capture processes for companies that have recognized data issues.
New Oliver Wyman/Institute of International Finance Report: The Implications of Financial Regulatory Reform for the Insurance Industry
International policy makers are developing new regulatory regimes aimed at ensuring enhanced financial stability in the post-financial crisis world. While the objectives of each of these regulatory initiatives may be clear, their interdependencies are not. Intricacies of new regulations or inconsistencies between regimes could adversely impact risk management practices at both insurers and banks and cause distortions in the market. Oliver Wyman’s new paper, The Implications of Financial Regulatory Reform for the Insurance Industry - produced by collaboration between Oliver Wyman and the Institute of International Finance with a working group of global insurance executives - explores these issues and highlights incentives that these differences appear to provide.
Continental European Legislative and Judicial Trends: Dutch Insolvency Law and Directors & Officers Liability
The worldwide economic downturn has had a huge effect on the Dutch economy. Many companies in the Netherlands face the risk of bankruptcy. In 2009 almost 11,000 enterprises were declared bankrupt, an increase of more than 51 percent compared with 2008. A similar number of companies are expected to enter bankruptcy in 2010. An even greater number of companies will be affected as they become entwined with the insolvencies of their contractual counterparties.
Group support will not be permitted when Solvency II becomes effective in 2012. As a result, the flexibility to use capital held anywhere in the group in calculating the Solvency Capital Requirement (SCR) will not be available. Rather, each entity will have to calculate its SCR based on the capital it has, regardless of its group’s position as a whole. This last-minute change to eliminate group support could prompt some European insurance groups to change their structures - or at least rethink how much risk they will take in each entity.