New York Insurers: Group-Wide Supervisor Requirement for IAIGs

In 2014 the New York State Department of Financial Services (DFS) adopted Regulation 203 (Reg. 203), which outlined the requirements for an insurer’s enterprise risk management (ERM) function and Own Risk and Solvency Assessment (ORSA) filing. Effective June 3, 2020, Reg. 203 has adopted language from the National Association of Insurance Commissioner’s (NAIC) Holding Company Act (HCA) model[1] that grants the superintendent the authority to act as a group-wide supervisor of internationally active insurance groups (IAIG). The amendment describes a group-wide supervisor as the regulatory official authorized to engage in conducting and coordinating group-wide supervision activities.

IAIGs are defined[2] as having:

1) International activity — Premiums are written in three or more jurisdictions, and percentage of gross premiums written outside the home jurisdiction are at least 10 percent of the group's total gross written premium; and,

2) Size —Based on a three-year rolling average, total assets of at least $50 billion USD, or gross written premiums of at least $10 billion USD.


Adopted Amendment

The superintendent has the authority to:

  • Assess enterprise risks within the IAIG to ensure the material financial condition and liquidity risks to members of the IAIG are identified by management with reasonable and effective mitigation measures in place.
  • Request any information deemed necessary and appropriate to assess enterprise risk, including information regarding governance, risk assessment and management, capital adequacy and material intercompany transactions.
  • Coordinate and compel development and implementation of measures designed to recognize and mitigate enterprise risks.
  • Communicate and share IAIG information with other state, federal and international regulatory agencies.
  • Enter into agreements with or obtain information and documentation from New York registered insurers, IAIG members and any other state, federal or international regulator that oversees IAIG.
  • Engage in other group-wide supervision activities consistent with the authorities and purposes enumerated above, as considered necessary.
DHG Views

The IAIGs should review their enterprise-wide risk management framework, which addresses all relevant and material risks. Risks may vary by country and business functions within those countries. An effective ERM framework must recognize the variations of these risks and aggregate them at the firm level. All lines of defense should be aware of material risks facing the insurer, understand their attributes and be cognizant of the current approaches to mitigate and control their key risks, as well as the effectiveness of those activities.

The insurer’s ORSA report must accurately reflect the IAIG’s scale and complexity and indicate a clear assessment of the IAIG’s risk management and its current and future group solvency position. Senior management is responsible for ensuring the insurer’s risk appetite is aligned across countries and business functions and reflected in the ORSA report. It is important for senior management to convey a strong message of capital adequacy by performing prospective solvency assessments under various adverse scenarios that incorporate the insurer’s material risks.

Given the abstract nature of many ERM concepts and the quantitative nature of stress testing and prospective solvency assessment, a third party can assist IAIG internal stakeholders by focusing on key areas to help interpret the insurer’s risk management narrative.

Source: New York State Department of Financial Services First Amendment to 11 NYCRR 82 (Insurance Regulation 203)

 

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References:

[1] NAIC Insurance Holding Company System Regulatory Act and the Insurance Holding Company System Model Regulation.

[2] Internationally Active Insurance Group (IAIG), The Center for Insurance Policy and Research. NAIC. May 14, 2020.

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