2006 PARIS

The Realities and Duties of 21st Century – Insurance Consulting Actuaries: after and beyond SOX

Chairman: Nick Dexter UK

Presenters: Mike Renetzky US

Ad Kok 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.PartnerLord, Bissell & Brook LLPChicago, 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.

SOMMAIRE/ SUMMARYSarbanes-Oxley Act of 2002

A - Scope B - Brief Overview C - Evaluation

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

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)

Sarbanes-Oxley Act of 2002

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 KokPrincipalWatson Wyatt Ltd.

SOMMAIRE/ SUMMARYAre 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

• Documentation– Lagging behind

• Processes– Enabling to control– Responsibilities

• Positioning– Independent

Are Actuaries in control now?

• Management– Reporting structure

• Supervisors– International consensus?– Agreed framework?

• Auditors– Agreed roles and responsibilities?

• Risk Managers– Existing relationship?

The Actuarial Relationships

• Show me and do not trust me– External vs. Internal

• Beyond Sox– Control framework

• External sign-off– Irreversible development?

Role for Consulting Actuaries

SOMMAIRE/ SUMMARY

Are Actuaries in control now?

The Actuarial Relationships

Role for Consulting Actuaries