Best Insurance

• While US insurers are making strides towards RMORSA
readiness, many of them still have a number of material
gaps. There are many important advantages to having a
well embedded ERM framework with clearly defined risk
limits that allows insurers to exploit key opportunities
and maximize risk-adjusted returns, while protecting
policyholders’ interests. Meeting regulatory requirements
as a by-product of an effective ERM framework and
risk-aware culture, rather than seeing the RMORSA as a
purely compliance requirement, will help differentiate
tomorrow’s winners in the market.
• Companies that do not yet have a fully operational
RMORSA strategy and process have much to gain, such
as a better ratings agency view of their ERM framework,
lower impact regulatory exams, better risk practices,
and enhanced collaboration between actuaries and asset
managers. Dedicating resources and budget to develop
the overall risk strategy will help companies with less
developed strategies and processes to catch up to their
more advanced competitors. In the longer term, all
market participants’ focus will move beyond regulatory
compliance and become more strategic, as companies
surpass the basic requirements and approach their
RMORSA from a primarily commercial, value-adding
perspective.
• The level of board engagement will need to increase for
most insurers as the implementation date of the new
RMORSA requirements approaches. Risk committees will
have to have formal terms of reference in order to comply
with the NAIC’s expectation of governance structures that
clearly define and articulate roles, responsibilities
and accountabilities.
• Insurers would benefit from establishing a formal
risk appetite statement with their boards. This is a
fundamental component of the ERM framework for any
organization. Companies with less complex risk profiles
should develop a risk appetite statement commensurately;
a relatively simple risk profile does not mean a formal
risk appetite statement is any less relevant. A formal
risk appetite statement should be the universal currency
within an organization against which it assesses all major
decisions. A robust and useable risk appetite statement
enhances risk governance and provides a platform on
which to engage every stakeholder.
• High on the list of many insurers’ ERM priorities
should be:
»» Investment in formal and fully operational stress
testing programs;
»» The development of new (or refinement of existing)
economic capital models to allow prospective
assessments of solvency and capital positions over
longer time horizons;
»» The subsequent independent validation of these
models; and
»» The refinement of risk quantification techniques and
available data and information.
• If regulators are to be certain that an organization has
a well established and embedded risk culture and ERM
framework, the insurer will need to:
»» Fully document and rigorously manage risk
policies; and
»» Design and implement risk management dashboards
or management information suites where they do not
currently exist.