NYS Department of Financial Services header image


Andrew M. Cuomo
Governor

Benjamin M. Lawsky
Superintendent

 

Insurance Circular Letter No. 14 (2011)

December 19, 2011

 

TO:

All Domestic Insurers and Public Health Law Article 44 Health Maintenance Organizations (“HMOs”) (Collectively, “Insurers”)

RE:

Enterprise Risk Management

STATUTORY REFERENCE: N.Y. Ins. Law §§ 201, 301, 310, 1115, Articles 13 and 14.

           

Summary

Given the importance of risk management, the Department of Financial Services (“Department”) expects every insurer to adopt a formal Enterprise Risk Management (“ERM”) function.  An effective ERM function should identify, measure, aggregate, and manage risk exposures within predetermined tolerance levels, across all activities of the enterprise of which the insurer is part, or at the company level when the insurer is a stand alone entity.

Discussion

The Department encourages all insurers to effectively manage enterprise risk.  As used in this Circular Letter, enterprise risk means any activity, circumstance, event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole.

The ERM function should be appropriate for the nature, scale, and complexity of those risks.  Further, the Department recognizes that a dedicated ERM function may be impractical or too costly for small insurers.

The Department views ERM as a key component of the risk-focused surveillance process.  An insurer that maintains an effective ERM function upon which examination teams may rely will assist the Department with performing a more efficient examination.

The Department recently has established evaluation criteria to assess an insurer’s ERM practices.  Specifically, the Department has implemented a process of evaluating an insurer’s ability to identify, measure, aggregate, and manage risk exposures within predetermined guidelines across all activities.  The Department expects to perform the evaluation in conjunction with the statutory examination, but may also conduct the evaluation as a stand-alone exercise.  The evaluation includes obtaining an understanding of the ERM function through interviews, questionnaires, and other documentation to be supplied by the insurer.  The Department will also substantiate and validate key components of the insurer’s ERM function.

The insurers that the Department selects for an ERM evaluation will receive advance notice.  If the Department intends to conduct the ERM evaluation in conjunction with the statutory examination, the Department will distribute a request for information with the standard pre-exam planning materials sent to the insurer prior to the examination.  The Department will incorporate the results of the ERM evaluation into the standard exam process to enhance the risk-focused surveillance process.

When conducting an ERM evaluation, the Department will look for adherence to the following ERM function objectives:

An insurer that believes that any of the records it submits to the Department in connection with its ERM contain “trade secrets . . . or if disclosed would cause substantial injury to the competitive position of the subject enterprise” may request, pursuant to New York Public Officers Law § 87(2)(d), that the Department except such documents from disclosure pursuant to Public Officers Law § 89(5)(a)(1).  Should the Department receive a request for records for which an insurer requested an exception from disclosure, the Department will notify the insurer and provide the insurer with an opportunity to respond in accordance with Article 6 of the Public Officers Law.

Conclusion

The Department views ERM as a key component of the risk-focused surveillance process, and expects every insurer to adopt a formal ERM function that identifies, measures, aggregates, and manages risk exposures within predetermined tolerance levels, across all activities of the enterprise of which the insurer is part, or at the company level when the insurer is a stand alone entity.

Please direct any questions or comments regarding this circular letter to Tim Nauheimer, Chief Risk Management Specialist, Markets Division, at (212) 709-1538 or timothy.nauheimer@dfs.ny.gov.

 

 

 

Very truly yours ,

______________________________________
Matti Peltonen
Acting Executive Deputy Superintendent