On Wednesday, September 12, 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment Model Act (Model Act). The Model Act was produced by the NAIC’s Group Solvency Issues (E) Working Group after several months of drafting, with input from insurance industry trade groups, and a month-long comment period. The NAIC believes the Model Act should satisfy insurers’ concerns regarding the confidentiality of risk assessments and bring the U.S. insurance regulatory system into equivalence with the European Union’s Solvency II regulations. The Model Act will become effective in 2015, and the first reports would be required that year.
Under the Model Act, insurers must maintain a risk management framework to “assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks.” The Model Act allows this risk assessment to be done at the group level for all members of the group as well. Insurance groups are required to submit an Own Risk and Solvency Assessment (ORSA) Summary Report to their lead regulator at least annually. An ORSA report also must be submitted “at any time when there are significant changes to the risk profile of the insurer or the insurance group.” Additionally, the Model Act provides that any insurance commissioner with jurisdiction over an insurer may require the annual submission of an ORSA Summary Report for that insurer’s group.