A Comparison of the 'Risk Management and Own Risk and Solvency Assessment Model Act' and Insurer Ratings

Abstract

The Own Risk and Solvency Assessment (ORSA) requires an increase in reporting for insurers. However, it is possible that many insurers already gather a significant amount of this information for other groups such as rating agencies. This study provides a comparison of the ORSA Summary Report requirements given in the NAIC Own Risk and Solvency Assessment (ORSA) Guidance Manual (ORSA Guidance Manual) and the information requested by ratings agencies such as A.M. Best as stated in the Credit Rating Methodology: Global Life and NonLife Insurance Edition to assess the similarities in information needed for ORSA reporting and rating agencies. We find significant similarities between ORSA reporting and the materials needed for credit rating. Given the overlap, the total cost of ORSA compliance may be less, in terms of time and effort, in preparing the ORSA Summary Report compared to firms that have not gathered information for ratings agencies. We analyze the number of insurers subject to ORSA, as well as the percentages that are both subject to ORSA and are rated by A.M. Best. We find that 69% of insurers subject to the ORSA Model Act also are rated by A.M. Best. This is roughly 72% of the insurance market by premium.