BURLINGTON, Vt. — Risk retention groups and pure captives could benefit from the Own Risk and Solvency Assessment regulation process, according to a panel of captive experts.

However, pure captives won't be subject to the National Association of Insurance Commissioners' ORSA rules at all, and RRGs will have some time before the regulations apply to them, if they ever do.

Speaking Thursday on a panel examining ORSA and assessing captives' capital needs at the Vermont Captive Insurance Association's annual conference in Burlington, Vt., the panel's moderator, Sandra A. Bigglestone, director of captive insurance for the Vermont Department of Financial Regulation, said that at the start of 2015, U.S. insurance companies will be subject to the ORSA model act and guidance model adopted last year by the NAIC.

Ms. Bigglestone said ORSA involves a company's own assessment of its risk, requiring companies to conduct a risk and solvency assessment under “a normal and stressed environment” and to document both the results of that assessment and the details of the assessment process.

While pure captives and many risk retention groups might be exempt from ORSA requirements, “ORSA could be a process that could make for an excellent assessment tool,” Ms. Bigglestone said.

Tim J. Cremin, consulting actuary at Milliman Inc. in Wakefield, Mass., said ORSA is not meant to be a “one-size-fits-all” approach to risk assessment, as risk-based capital formulas are, but instead a process through which a company asks questions about risks and then through a process of risk analysis answers those questions.

%%BREAK%%

The ORSA framework involves four steps, Mr. Cremin said:

• Identifying the major risks;

• Establishing a process for measuring those risks;

• Managing and mitigating the major risks; and

• Documenting the risk assessment process and results.

For a captive insurers, the process can be integrated with the parent company's enterprise risk management program, Mr. Cremin said.

Joelle Hren, vice president, finance, insurance at Premier Inc. in San Diego, which manages the Vermont-domiciled American Excess Insurance Exchange RRG, said AEIX has adopted an ORSA-type risk assessment approach after determining that a risk-based capital analysis was inadequate for its needs.

“The No. 1 thing we have to keep in mind … is claims-paying ability,” Ms. Hren said. For the medical malpractice RRG, she said, “the magical question” is “how much surplus is enough.”