The Actuary’s Responsibility to Auditors and Examiners Casualty Loss Reserve Seminar -
Download ReportTranscript The Actuary’s Responsibility to Auditors and Examiners Casualty Loss Reserve Seminar -
The Actuary’s Responsibility to Auditors and Examiners 5/27/2016 Casualty Loss Reserve Seminar September 9, 2003 1 Actuarial Support in an Audit - Auditor Expectations Michael J. Grillaert, Partner KPMG LLP 5/27/2016 Casualty Loss Reserve Seminar September 9, 2003 2 Introduction 5/27/2016 An Auditor’s Expectations of Actuarial Support in an Audit Environment How were these Expectations Developed? Casualty Loss Reserve Seminar September 9, 2003 3 Topics of Discussion Professional Requirements Statement of Auditing Standards # 73 “Using the Work of a Specialist” Sarbanes-Oxley Section 404 Internal Control Compliance Reviews Views Toward the Future 5/27/2016 Casualty Loss Reserve Seminar September 9, 2003 4 Professional Standards – SAS # 73 Requires the Auditor to Gain an Understanding of: Specialist’s Qualifications (FCAS, ACAS, etc.), reputation and standing & experience The Specialist’s relationship to the client (Independence) Methods and assumptions used and comparability to the prior period 5/27/2016 Casualty Loss Reserve Seminar September 9, 2003 5 Traditional Areas of Actuarial Assistance 5/27/2016 Review or Independent evaluation of Loss and LAE adequacy Review of Reinsurance Risk-Transfer elements (SSAP 62 & SFAS 113) Review of Overall Reinsurance program construct Evaluation of Breadth and Depth of client actuarial resources (people, systems, etc.) Review of Guide 6 disclosures, MD&A and financial statement footnotes for actuarial related matters. Casualty Loss Reserve Seminar September 9, 2003 6 Traditional Areas of Actuarial Assistance Recent SEC Focus on much more robust disclosures of actuarial matters: 5/27/2016 Reasons and timing of changes in estimates on prior year reserve developments – how long has a change in pattern been observed, why now and not last quarter or last year??? Disclosure of critical accounting estimates, key assumptions used therein and potential volatility More robust MD&A disclosures re: frequency and severity by line, etc. Some restatements of Financial Statements have been mandated Casualty Loss Reserve Seminar September 9, 2003 7 Sarbanes-Oxley Section 404 Compliance 5/27/2016 Requires a compliance audit of the Internal Control mechanisms covering all significant financial statement items and disclosure items Part of comprehensive legislation which requires each registrant’s CEO and CFO, every 90 days, to certify that the internal control mechanisms in place are sufficient to prevent and/or detect financial statement errors before they emerge in the financial statements Casualty Loss Reserve Seminar September 9, 2003 8 Sarbanes-Oxley Section 404 Compliance 5/27/2016 Requires the CEO/CFO to advise the Auditor of Internal Control deficiencies New Auditing Standards require that process documentation be maintained for significant financial statement processes Lack of Documentation = Qualified Audit Report!!!! Impact on Financial Markets - Unknown Casualty Loss Reserve Seminar September 9, 2003 9 Sarbanes-Oxley Section 404 Compliance Virtually all significant Insurance Company operations are in some way actuarially related: 5/27/2016 Product development Product pricing Policy underwriting Agent compensation and retention Loss adjudication and reserving Compliance with laws and regulations Casualty Loss Reserve Seminar September 9, 2003 10 FCAS = MVP The engagement Actuary typically has the most comprehensive insurance industry knowledge of any team professional Risk-Management Perspective Appreciation of the importance of industry specific functions such as: 5/27/2016 Underwriting policies Loss adjudication Reinsurance Rating agency / Financial analysis considerations Casualty Loss Reserve Seminar September 9, 2003 11 What This Means 5/27/2016 The actuary is well positioned to take a lead role in Client service in the years ahead. The status of the Actuary in an audit will be elevated substantially; it is my expectation that actuaries will be present in many more Audit Committee settings covering both general business and actuarial matters. Casualty Loss Reserve Seminar September 9, 2003 12 Questions / Comments 5/27/2016 Casualty Loss Reserve Seminar September 9, 2003 13