Tom Sullivan is a principal at Pricewaterhouse-Coopers LLP's financial services regulatory practice in Hartford, Conn., and a former Connecticut insurance commissioner. He recently spoke with Mark A Hoffman, a senior editor at sibling publication Business Insurance, about the National Association of Insurance Commissioners' adoption of the Risk Management and Own Risk and Solvency Assessment model law and other regulatory issues.
Q: What should insurers do now to meet the demands of the law?
A: A proactive approach is advisable, as regulators, ratings agencies, investors and other stakeholders will look favorably on insurers who are serious about the RMORSA. Insurers that are already developing sophisticated risk and capital practices will be better equipped for meaningful dialogue with regulators. While the model act requires the RMORSA Summary Report to be filed first with the commissioner in the lead state of domicile in 2015, all documentation and evidence that supports the report must be available for regulatory inspection upon examination (or whenever the lead commissioner so requires).
We expect many states will include RMORSA-type frameworks in their supervisory reviews before 2015. The RMORSA is an opportunity to enhance the integration of comprehensive risk, capital, governance and strategy. A successful RMORSA approach is one an insurer embeds in its culture. Preparing for the RMORSA's impact includes educating staff and executive leadership on newer risk and capital measurement and management approaches. Insurers also should assess current risk management practices. This will provide valuable information on any gaps in capabilities, resources and technical tools.
Insurers should begin RMORSA compliance planning and develop an approach for regulator interaction. Engaging regulators early on should foster a constructive relationship in which they can provide insights on their RMORSA expectations.
Q: Are there other significant new regulatory demands on the horizon? Is Solvency II still a concern for U.S. insurers?
A: Many solvency modernization initiative components have progressed to implementation, while others remain in development. The NAIC also has advanced changes to the insurance holding company model act. This will allow U.S. insurance regulators to more broadly examine groups and participate in supervisory colleges with their international counterparts.
The European Solvency II Directive remains in development. It will introduce new capital requirements, which some insurers fear will be overly restrictive. U.S. insurers that write business in Europe would be subject to these changes. European and U.S. regulators have not determined how the U.S. would be recognized under the terms of Solvency II and if the U.S. regime would be deemed “equivalent.”
Q: What impact has the Federal Insurance Office had on the domestic insurance industry so far, and is that likely to change in the future?
A: The FIO's impact on the industry has been negligible. It does not have authority to directly regulate the business of insurance in the U.S. This probably won't change, and direct supervision will remain with the states. The FIO has been active with the international regulatory community and continues to play a coordination role.
Mark A Hoffman is a senior editor at sibling publication Business Insurance.
