2006 PARIS
The Realities and Duties of 21st Century –
Insurance Consulting Actuaries: after and
beyond SOX
Chairman:
Nick Dexter
Presenters: Mike Renetzky
Ad Kok
UK
US
The Netherlands
1st June 2006 11:00 – 12:30
The Realities and Duties of 21st
Century - Insurance Consulting
Actuaries: after and beyond SOX
Michael K. Renetzky, Esq.
Partner
Lord, Bissell & Brook LLP
Chicago, USA
This presentation is solely for educational and
informational purposes. It is not intended to constitute
legal advice or to create an attorney-client
relationship.
Sarbanes-Oxley Act of 2002
A - Scope
B - Brief Overview
C - Evaluation
SOMMAIRE/
SUMMARY
The NAIC and SOX for Insurance Companies
A - Reinsurance Attestations
B - Internal Controls
C - Other SOX Matters
The Role for Consulting Actuaries
A - Reinsurance and Risk Transfer
B - Model Audit Rule and Other Opportunities
Sarbanes-Oxley Act of 2002
Scope
• United States of America
• Congress response to egregious acts
– Enron, WorldCom, Tyco, Adelphia
• Primarily impacts public companies
Sarbanes-Oxley Act of 2002
Brief Overview
• Audit Committees
• Gatekeepers
• Senior executive
certifications/attestations
Sarbanes-Oxley Act of 2002
Brief Overview cont’d
• Internal Controls
• Code of Ethics
• Whistleblower protection
• Insider transactions
Sarbanes-Oxley Act of 2002
Evaluation
• PCAOB report
• GAO report
• SEC advisory panel
• Commissioner Glassman
• SEC/PCAOB roundtable
Sarbanes-Oxley Act of 2002
Evaluation cont’d
• Voluntary compliance
– Nonprofit sector
– Non-US companies (e.g. Lafarge)
NAIC and State Developments
Reinsurance Attestations
• Effective with 2005 Annual Statements
• Scope
– Reinsurance contracts for which financial
statement credit is taken
– January 1, 1994 - enter, renew or amend
NAIC and State Developments
Reinsurance Attestations cont’d
• To the best of CEO/CFO’s knowledge
and belief after diligent inquiry
– No side letters or agreements affecting
actual or potential loss
– Documentation of economic intent and risk
transfer analysis (unless self-evident)
NAIC and State Developments
Reinsurance Attestations cont’d
• To the best of their knowledge and
belief after diligent inquiry
– Compliance with SSAP No. 62
– Appropriate controls to monitor use of
reinsurance and compliance with SSAP
No. 62
NAIC and State Developments
Reinsurance Attestations cont’d
• Risk transfer
– Is it self-evident?
– Is a significant risk transferred?
– Cash flow testing
NAIC and State Developments
Reinsurance Attestations cont’d
• Cash flow testing
– Build the model
– Assumptions regarding ultimate loss, loss
payment patterns, discount rates
– Test historical results and hypothetical
scenarios
NAIC and State Developments
Internal controls
• Proposed revisions to Model Audit Rule
• Applies to non-public insurance
companies
• Exemption thresholds
• Accreditation process
NAIC and State Developments
Internal controls cont’d
• Status
– NAIC/AICPA working group
– Financial Condition (E) committee
– Possible adoption this month?
NAIC and State Developments
Internal controls cont’d
• No accountant attestation; report to
management in lieu
• SAS 60 or equivalent requirement
NAIC and State Developments
Internal controls cont’d
• Management report
– Management is responsible for establishing
and maintaining controls
– Controls are effective to the best of
management’s knowledge and belief, after
diligent inquiry
NAIC and State Developments
Internal controls cont’d
• Management report
– Statement of approach for evaluation
– Disclosure of unremediated material
weaknesses
NAIC and State Developments
Other SOX Matters
• Outside directors/independent directors
• Independent auditor standards
– prohibition on certain actuarial services
• Code of ethics
The Role for Consulting
Actuaries
• Reinsurance and risk transfer analysis
• Controls relating to reserve creation and
maintenance
• Consultants to outside directors
• Fill need created by proposed
limitations on independent auditors
Michael K. Renetzky, Esq.
Lord, Bissell & Brook LLP
Atlanta - Chicago - London - Los Angeles New York - Washington
mrenetzky@lordbissell.com
(312) 443-1823
The Realities and Duties of 21st Century Insurance Consulting Actuaries
After and beyond SOX
Ad Kok
Principal
Watson Wyatt Ltd.
Are Actuaries in control now?
A - Documentation
B - Processes
C - Positioning
The Actuarial Relationships
A - Management
B - Supervisors
C - Auditors
D - Risk managers
Role for Consulting Actuaries
A - Show me and do not trust me
B - Beyond Sox
C - External sign off
SOMMAIRE/
SUMMARY
Are Actuaries in control now?
• Documentation
– Lagging behind
• Processes
– Enabling to control
– Responsibilities
• Positioning
– Independent
The Actuarial Relationships
• Management
– Reporting structure
• Supervisors
– International consensus?
– Agreed framework?
• Auditors
– Agreed roles and responsibilities?
• Risk Managers
– Existing relationship?
Role for Consulting Actuaries
• Show me and do not trust me
– External vs. Internal
• Beyond Sox
– Control framework
• External sign-off
– Irreversible development?
SOMMAIRE/
SUMMARY
Are Actuaries in control now?
The Actuarial Relationships
Role for Consulting Actuaries