Own Risk and Solvency Assessment (ORSA)

What Does Own Risk and Solvency Assessment (ORSA) Mean?

Own risk and solvency assessment (ORSA) is an ongoing self-directed process undertaken by insurers and insurance groups to gauge the adequacy of their risk management and solvency conditions under both normal and severe stress scenarios.

An ORSA calls for insurers to analyze all reasonably foreseeable risks in all aspects of their operation — such as underwriting, credit, market, operations, liquidity — that could have an impact on their ability to meet their obligations to policyholders.

Not less than once a year, organizations must conduct an ORSA, document the process and furnish either the state insurance commissioner or regulator with a report. Insurers that write more than $500 million worth of premiums or groups that write more than $1 billion in premiums are required to participate. There are no rules about how insurers should conduct ORSAs or how the content of an ORSA report should be organized.

Insuranceopedia Explains Own Risk and Solvency Assessment (ORSA)

During the 2008 global financial crisis, the American Insurance Group (AIG) and other insurers were confronted with uncertainty about their ability to meet obligations due to risky investments that had turned into immense losses. To prevent such crises in the future, in 2011 the National Association of Insurance Commissioners (NAIC) adopted the ORSA program, which then took effect in 2015.

The purpose is to enable insurance regulators to have a better big picture of the health of the insurance industry. Further, the goal is to help insurers better understand their risk exposure, improve their risk management processes, and better understand their risk appetites and tolerances — risk appetite meaning how much risk they are willing to take on to meet their goals, and risk tolerance meaning how much variability in returns they will accept.