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The RMORSA Model Act, which is in the process of being implemented in state law, requires insurers to manage a comprehensive ERM framework that is embedded within company operations by
"Setting the risk strategy, implementing and validating a capital model and developing effective risk reporting capabilities could take a couple of years. Our survey shows that many organizations may be underestimating the amount of work it will take to meet the RMORSA requirements," said
PwC's survey addressed the four main parts of an ERM program that have direct influence on RMORSA preparation, namely risk strategy, risk governance, risk management and risk quantification. Key findings in each of these areas include:
Risk strategy – 25 percent of companies reported that risk appetite metrics are not part of the business planning process, while only 57 percent include some, highlighting a significant disconnect between risk management and strategic decision-making. A quarter of companies do not have a risk-specific limit framework to guide the business' compliance with risk appetite. A robust risk appetite and limits framework enhances risk governance and provides a platform on which to engage every stakeholder.
Risk governance – More than 30 percent of companies do not have a dedicated chief risk officer, with three quarters of these insurers reporting that other positions cover the role, often on a part-time basis. The CRO or risk committees will be largely responsible for compliance with the RMORSA requirements. A key component of successful ERM is a risk culture that involves the entire organization and fosters shared responsibility for risk management.
Risk management – 22 percent of companies reported not having a formal process to address risk identification, with most of these insurers adopting an informal one to address risk identification. A small minority reported that they do not have or do not see a need for a formal process. Moreover, many companies do not have fully documented risk policies that cover the significant risks to which they are exposed.The RMORSA process is also an ideal opportunity to perform a comprehensive stress, reverse stress and scenario testing exercise. RMORSA should take place in conjunction with an organization's business planning process, leading to a high degree of coordination between risk, underwriting, strategy, finance and compliance functions.
Risk quantification – 37 percent of companies are not using an economic capital measure in addition to the more traditional capital metrics of statutory capital, such as GAAP and rating agency capital. Economic capital models are very useful tools in risk management and risk aggregation, but even those organizations that have them in place do not necessarily use the information to the fullest to make strategic decisions. Given the business-critical uses to which capital models are put, RMORSA requires models to meet the highest quality standards, be appropriately calibrated and fully tested and documented.