Own Risk And Solvency Assessment
What Does Own Risk And Solvency Assessment Mean?
The Own Risk and Solvency Assessment (ORSA) is an ongoing, self-directed process undertaken by insurers and insurance groups to assess the adequacy of their risk management and solvency conditions under both normal and severe stress scenarios.
ORSA requires insurers to evaluate all reasonably foreseeable risks across their operations—such as underwriting, credit, market, operations, and liquidity—that could affect their ability to meet obligations to policyholders.
At least once a year, organizations must conduct an ORSA, document the process, and submit a report to the state insurance commissioner or regulator. Insurers writing more than $500 million in premiums or groups writing more than $1 billion in premiums are required to participate. While there are no specific rules governing how insurers should conduct ORSAs or structure the content of an ORSA report, they must adhere to these reporting requirements.
Insuranceopedia Explains Own Risk And Solvency Assessment
During the 2008 global financial crisis, the American Insurance Group (AIG) and other insurers faced significant uncertainty about their ability to meet obligations due to risky investments that resulted in massive losses. To help prevent similar crises, the National Association of Insurance Commissioners (NAIC) adopted the Own Risk and Solvency Assessment (ORSA) program in 2011, which came into effect in 2015.
The program aims to provide insurance regulators with a comprehensive view of the industry’s overall health. Additionally, it seeks to help insurers better understand their risk exposure, enhance their risk management processes, and clarify their risk appetites and tolerances. Risk appetite refers to the level of risk an insurer is willing to take on to achieve its goals, while risk tolerance pertains to the degree of variability in returns the insurer is willing to accept.
