New York Proposes ERM and ORSA Regulation

by Saul Ewing Arnstein & Lehr LLP


The New York Department of Financial Services (“DFS”) has proposed a new insurance regulation that details the requirements associated with adopting an enterprise risk management (“ERM”) function, conducting an annual Own Risk and Solvency Assessment (“ORSA”), and filing related reports. The Proposed Regulation was published in the New York Register on January 22, 2014. Interested parties have 45 days after the Proposed Regulation’s publication to file comments with the DFS.

Applicability to Non-New York Domestic Insurers

In addition to its applicability to New York domestic insurers and their holding companies, the Proposed Regulation applies in some circumstances to non-New York domestic insurers that are licensed in New York and their holding companies. For example, the Proposed Regulation’s requirement concerning the adoption of a formal ERM function applies to non-New York domestic insurers that are licensed in New York and their holding companies. Additionally, the Proposed Regulation’s requirement concerning the filing of an annual ERM report applies to holding companies that control non-New York domestic insurers that are licensed in New York. In contrast, the Proposed Regulation’s ORSA requirements only apply to New York domestic insurers.

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 DFS under Insurance Law Articles 16 or 17, to adopt an ERM function and to file an annual ERM report with the DFS. 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. 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. The Proposed Regulation also requires the ERM report, which would be due by April 30 of each year, to include a discussion of the items listed in the NAIC’s Insurance Holding Company System Model Regulation, including but not limited to the following topics:

  • any material developments regarding strategy, internal audit findings, compliance or risk management;
  • any acquisition or disposal of insurance entities and reallocation of existing financial or insurance entities;
  • developments in any investigations, regulatory activities, or litigation that could have a significant bearing or impact; and
  • the business plan of the insurer and a summary of the insurer’s or system’s strategies for the next 12 months.

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 DFS, 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.

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