The NAIC Solvency Modernization Initiative taskforce's adoptionof the U.S. Own Risk and Solvency Assessment (ORSA) proposal inWashington, D.C. a fortnight ago has left us with a number of bigquestions. One of the biggest and most difficult is: What'snext?

Make no mistake; the ORSA is an evolutionary culture shift forthe NAIC. It is a significant new regulatory proposal for theU.S.—and one that has the potential to impact insurancesupervision. The perspectives that a well-executed ORSA can providewill be valuable to regulators, who will need to make available thetime and resources to fully understand them. For insurers, the ORSAfiling could provide further opportunity to engage regulators anddemonstrate the utility of good capital management.

There appears to be a sincere desire among both the industry andregulators for the U.S. ORSA to work. The proposals are the productof the NAIC's exhaustive yet transparent policymaking process—andhave been a genuinely collaborative effort between insurers andsupervisors. The Chief Risk Officers Council has investedsignificant time in working with the NAIC, and other industrygroups and individual firms have provided much constructivecomment. This is one reason why the proposal has so much momentumat the moment—and is a good reason why the U.S. ORSA is likely tomake a difference in practice.

The U.S. ORSA also is unusual in that the NAIC has a strongexternal motivator: the International Monetary Fund's 2014Financial Sector Assessment Program review. Regulators were firm atNAIC's recent national meeting that the U.S. would seek credit forimplementing Insurance Core Principle 16 in the 2014 review;demonstrating that the ORSA is a meaningful part of the regulatoryframework will be vital in achieving this. If insurers are expectedto invest the time and resources into implementing the U.S. ORSA,they will also expect it to be made a meaningful part of theirsupervision.

Finally, the NAIC's recognition at the national meeting thatstate insurance departments will need training and potentiallyexpert resources is a positive development. The NAIC still faceschallenges migrating from a heavily retrospective approach toso-called "risk focused" examinations. Because risk- andcapital-management practices at major insurers are complex, it isreasonable to expect a learning curve. Suggestions at the nationalmeeting that regulators will develop new guidance for the FinancialExaminer's Handbook also indicated that the NAIC is seriouslythinking about the resources it will need to implement the ORSAeffectively.

Look out for our next blog, where we'll continue to discuss thenew proposals.

Henry Jupe, Jean Connolly and Mary Ellen Coggins contributedto this article.