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18th of May 2012

NY announces ERM standards

Matthew Broomfield 11/10/2011

The New York State Insurance Department has released outlined its expectations of state-domiciled insurers’ enterprise risk management.

In its proposed circular letter the NYSID stated that an effective ERM function should be able to “identify, measure, aggregate, and manage risk exposures within predetermined tolerance levels, across all activities of the insurer or group of insurers”.

The evaluation of an insurer’s ERM practices is expected to be performed in connection with the statutory examination of the insurer, but may be conducted as a separate exercise.

The letter states that the NYSID views the ERM function as a “key component of the risk-focused surveillance process” and will incorporate the results of the ERM evaluation into the standard examination process.

The letter lists the criteria that the NYSID will look for when evaluating an insurer’s ERM function, which includes:

An insurer’s ERM process of risk identification and quantification should be supported by documentation providing appropriately detailed descriptions and explanations of risks identified, the measurement approaches used, key assumptions made and outcomes of any plausible adverse scenarios that were run. Scenario and stress testing should also be a key component of the ERM function.

An insurer’s board of directors and senior management should begin to contemplate performing its own risk and solvency assessment (“ORSA”) as part of the ERM function to assess the adequacy of its risk management and current and future solvency position.

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