Filed Under:, Enterprise Risk Management

What Does NAIC's Adoption of RMORSA Model Act Mean?

The National Association of Insurance Commissioner’s newly adopted Risk Management and Own Risk and Solvency Assessment (RMORSA) model act signifies a fundamental shift in the regulatory scrutiny of the insurance industry’s enterprise risk management (ERM) and capital-management practices. The act, which each jurisdiction now needs to adopt into state law, requires insurers to maintain a comprehensive risk-management framework that is embedded into company operations and covers current and prospective solvency positions under severe stressed scenarios.

The recent financial crises highlighted weaknesses in the insurance regulatory framework. In turn, this compelled regulators, insurers and industry stakeholders to recalibrate the U.S. regulatory regime. The RMORSA is a component of the NAIC's broader Solvency Modernization Initiative (SMI). The passage of the model act demonstrates the NAIC's focus on ERM practices and the requirement that they be integrated in insurers’ operating models.

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