Enterprise Risk Management: (A Risk Assessment and Management Control Cycle-Determining if your company's risk appetite is too big, too small, or just right!)

Abstract

After the collapse of major financial power houses, the push for corporate-wide risk assessment and management increased. At a national and state level, regulators and rating agencies are incorporating enterprise risk management into their evaluations of companies’ financial strength. Advisory entities like the National Association of Insurance Commissioners (NAIC) have also entered the arena. For instance, in 2008, the NAIC launched the Solvency Modernization Initiative (SMI) to focus on capital requirements, governance and risk management, financial reports and reinsurance. NAIC, “2012 Annual Report: Six Degrees of the NAIC, Discussion Topic: Solvency Modernization” (2012). That initiative spawned the creation of the NAIC’s Risk Management and Own Risk Solvency and Assessment Model Act (ORSA), adopted by the NAIC on September 12, 2012. The purpose of ORSA is “to provide the requirements for maintaining a risk management framework and completing an Own Risk and Solvency Assessment and provide instructions for filing an ORSA Summary Report” with state insurance commissioners to the extent required by state law. See, ORSA, Section 1. According to the NAIC, ORSA is a “key component of regulatory reform.. . . ORSA will require insurance companies to issue their own assessment of their current and future risk through an internal risk self-assessment process.. . . It will allow regulators to form an enhanced view of an insurer’s ability to withstand financial stress.” See, NAIC, Briefs, Letters, MOUS, Testimony & Speeches, ORSA, http://www.naic.org/cipr_topics/topic_own_risk_solvency_assessment.htm