New York Considers Changes to Proposed ERM and ORSA Regulation

by Saul Ewing LLP
Contact

Summary

Based on industry comments, the New York Department of Financial Services (the “NYDFS”) is strongly considering making a number of changes to its proposed Regulation 203, concerning Enterprise Risk Management (“ERM”) and Own Risk and Solvency Assessment (“ORSA”). A revised version of the proposed Regulation containing those changes is intended to be promulgated as an “emergency regulation” prior to April 30, 2014 (the date by which the first ERM report must be filed).

By way of background, on January 22, 2014, the NYDFS published in the New York Register its long-awaited proposed Regulation concerning ERM and ORSA.  Interested parties were given 45 days after the proposed Regulation’s publication to file comments with the NYDFS. Based on those comments, the NYDFS has indicated that it is strongly considering making the following changes to the proposed Regulation:

1. As ERM reports and ORSA summary reports often contain highly sensitive information, the proposed changes would clarify that insurers are permitted to seek to protect such information as trade secrets. The NAIC had recognized this confidentiality issue in its model acts; however, confidentiality requirements were not included in Regulation 203 as originally proposed. Based on industry feedback, the NYDFS intends to add confidentiality language to the proposed Regulation so as to clarify that insurers are permitted to request trade secret protection pursuant to New York’s Public Officers Law. Additionally, the NYDFS intends to insert the word “confidential” into the definition of “ORSA summary report” and intends that the ERM report will be referred to as the “confidential ERM report.”

2. The NYDFS intends that the proposed ERM function requirement for stand-alone insurers (as defined below) that are not New York domestics will be deleted from the proposed Regulation.

3. Consistent with NYDFS Circular Letter 2011-14, the NYDFS intends that the proposed Regulation’s ERM function requirements will be recast as “objectives” that “should be appropriate for the nature, scale and complexity of the risk.”

Additionally, the NYDFS intends to permit insurers to electronically file their ERM reports through its Article 15 Holding Company Portal Application.

Although there has been discussion concerning whether ERM reports and ORSA summary reports should cover a fixed period that ends prior to the date of the required filing, the NYDFS currently intends that the ERM report and ORSA summary report should cover the period up to the date of the applicable filing.

The Original Version of the Proposed Regulation

As originally proposed, Regulation 203 provides for the following:

ERM Requirements

The proposed Regulation would require (i) holding companies that directly or indirectly control a New York authorized insurer, and (ii) New York domestic insurers that are required to register with the NYDFS under Insurance Law Articles 16 or 17, to adopt an ERM function and to file an annual ERM report with the NYDFS. Additionally, the proposed Regulation would require New York authorized insurers that are stand-alone insurers (i.e., not part of an Article 15, 16 or 17 system), to adopt an ERM function.  (As described above, that requirement is proposed to be eliminated for non-New York domestics.) Such stand-alone insurers would also be required to file an annual ERM report only if they are New York domestic insurers that have annual direct written and unaffiliated assumed premium totaling an amount equal to or greater than $500 million.

The proposed Regulation sets forth minimum requirements for the ERM function. (As described above, that requirement is proposed to be recast as an “objective.”) The proposed Regulation also requires the ERM report, which would be due by April 30 of each year, to include a discussion of the following items (which are essentially those listed in Model Form F/Enterprise Risk Report set forth in the NAIC’s Insurance Holding Company System Model Regulation):

  • any material developments regarding strategy, internal audit findings, compliance or risk management affecting the insurer, holding company system or the insurer’s article 16 or article 17 system;
  • any acquisition or disposal of insurance entities and reallocation of existing financial or insurance entities with regard to the insurer, holding company system or the insurer’s article 16 or article 17 system;
  • any changes in the shareholders of the insurer, holding company system, or the insurer’s article 16 or 17 system that exceed ten percent or more of voting securities;
  • developments in any investigations, regulatory activities, or litigation that could have a significant bearing or impact on the insurer, holding company system, or the insurer’s article 16 or article 17 system;
  • the business plan of the insurer, holding company system, or the insurer’s article 16 or article 17 system, and a summary of the insurer’s or system’s strategies for the next 12 months;
  • the identification of any material concerns regarding the insurer, holding company system, or the insurer’s article 16 or article 17 system by a supervisory college, if any, held during the last year;
  • the identification of capital resources and material distribution patterns with regard to the insurer, holding company system, or the insurer’s article 16 or article 17 system;
  • the identification of any negative movement, or any discussions with nationally recognized statistical rating organizations, that may have caused, or may cause, potential negative movement in the credit ratings and individual insurer financial strength ratings assessment of the insurer, holding company system, article 16 system, or article 17 system (including both the rating and outlook);
  • information on any corporate or parental guarantees throughout the holding company system, or the insurer’s article 16 or article 17 system, and the expected source of liquidity should the guarantees be called upon; and
  • the identification of any material activity or development of the insurer, holding company system, or the insurer’s article 16 or 17 system that, in the opinion of senior management, could adversely affect the insurer, holding company system, or the insurer’s article 16 or article 17 system.

ORSA Requirements

New York domestic insurers that have annual direct written and unaffiliated assumed premium in an amount equal to or greater than $500 million (or, $1 billion, if the insurer is a member of a holding company system, Article 16 system, or Article 17 system) must also conduct an annual ORSA, consistent with the process set forth in the ORSA Guidance Manual (the “Guidance Manual”) published by the NAIC. Insurers that are not exempt from the requirement to conduct an ORSA must submit an annual ORSA summary report to the NYDFS, beginning on December 1, 2015, and the summary report must be prepared in a manner consistent with the Guidance Manual. The ORSA summary report must be signed by the company’s chief risk officer (or comparable executive) who has the responsibility for the oversight of the ERM function and attest, to the best of his or her knowledge and belief, that the domestic insurer or other member of the domestic insurer’s holding company system, Article 16 system, or Article 17 system applies the ERM function described in the ORSA summary report. The officer must also attest that a copy of the ORSA summary report has been provided to the company’s board of directors, or “appropriate committee thereof.”

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Saul Ewing LLP | Attorney Advertising

Written by:

Saul Ewing LLP
Contact
more
less

Saul Ewing LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!