What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation.

Slides:



Advertisements
Similar presentations
Group Supervision in the US David Vacca, Assistant Director Insurance Analysis & Information Services NAIC Regulatory Services Division July 2011.
Advertisements

Corporate Governance Reform Professor Blanaid Clarke Trinity College Dublin Law Reform Commission Annual Conference 11th December 2012.
Insurance Regulatory Update September 30, 2014 Office of Corporate and Financial Regulation Stephen J. Johnson, CPA, Deputy Insurance Commissioner.
1 Risk-Focused Surveillance Framework Enterprise Risk Management Symposium Chicago, Illinois April 26, 2004 Terri Vaughan, Iowa Insurance Commissioner.
Overview of U.S. Solvency Framework David Vacca, CPA Assistant Director Insurance Analysis & Information Services NAIC Regulatory Services Division.
Enterprise Risk Management and the Compliance Professional Denise Tessier, Senior Regulatory Consultant Wolters Kluwer Financial Services
Investments Institute of Insurance and Risk Management (IIRM) Hyderabad, India 15 November 2005 Arup Chatterjee – Advisor International Association of.
Enterprise Risk Management and the Own Risk Solvency Assessment Act Michelle M. Rogers, JD Director of Financial and Regulatory Policy National Association.
NAIC Oversight of Corporate Governance Commissioner Susan Donegan Vermont Department of Financial Regulation.
A Case Study: ERM Implementation at Erie Insurance Gene Connell, Senior Vice President – Actuarial Erie Insurance Group Casualty Actuarial Society Spring.
Risk Management and Governance
2011 Governance, Risk, and Compliance Conference August 29 – 31, 2011 / Orlando, FL, USA The Top Four Essential Objectives to Auditing ERM Stephen E. McBride,
6/2/20151 Enterprise Risk & Assurance Management in Zurich North America Brian Selby MA (Audit), FIIA, QiCA, MBCS, CISA.
ERIC R. FISCHER SENIOR FELLOW BOSTON UNIVERSITY CENTER FOR FINANCE, LAW & POLICY 1.
An Overview of Risk Management based on a Disclosure from an Annual Report Jon Wu, November 19, 2014.
Are you ready for the NAIC Corporate Governance Models?
PAMIC 2015 Executive Roundtable June 3, 2015 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation - 1 -
Plantemoran.com 2015 MI IASA SPRING CONFERENCE ORSA is Here – Are You Ready? April 22, 2015 Novi, MI.
NAIC Review of ERM & Internal Controls David Altmaier Florida Office of Insurance Regulation.
RISK MANAGEMENT FOR INSURERS IN ISRAEL A Regulatory Perspective.
Internal Control and Internal Audit
CORPORATE RISK MANAGEMENT & INSURANCE BY R P BLAH D.G.M. INCHARGE THE ORIENTAL INSURANCE COMPANY LIMITED REGIONAL OFFICE BHUBANESWAR.
Presented by: G. Lawrence Buhl, CPA Retired Audit Partner at Ernst & Young 1 Risk Management & ERM: What Insurer Boards Need to Know.
State Examinations Have No Fear, Help is Here. Risk-Focused Financial Condition Exams NAIC mandated for state insurance departments beginning 1/1/2010.
Corporate Governance and Risk Management Current Practices and Ongoing Developments in the U.S. Commissioner Jim Donelon Louisiana Department of Insurance.
Enterprise Risk Management Framework For Small to Mid-Sized Property & Casualty Insurance Companies Presented by Joseph F. Morris CPA, MBA
What You Can Expect From ORSA, A Regulatory Perspective
1 1 Risk-Focused Financial Analysis David A Vacca, CPA Insurance Analysis & Information Services NAIC Regulatory Services Division.
Insurance Regulatory Update September 30, 2014 Office of Corporate and Financial Regulation Stephen J. Johnson, CPA, Deputy Insurance Commissioner.
2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver Canadian Institute of Actuaries Canadian.
Update on Regulatory Topics April 27, 2015 Office of Corporate and Financial Regulation Annette B. Szady, CPA, Director, Bureau of Financial Examinations.
2014 PAMIC Financial Management Seminar Enterprise Risk Management Presentation Jeff Pratt – Director FP&A September 30, 2014.
Insurance Regulatory Update September 23, 2015 Office of Corporate and Financial Regulation Stephen J. Johnson, CPA, Deputy Insurance Commissioner.
1 Today’s Presentation Sarbanes Oxley and Financial Reporting An NSTAR Perspective.
Risk Management For the Board of The Law Society 16 February 2005.
Solvency Update2008 CAS Spring Meeting – Quebec City 1 U.S. Insurance Solvency Today & Future Kris DeFrain, FCAS, MAAA, CPCU Senior Financial Regulatory.
Robert M. Warren, CPA, CPCU Demotech, Inc..  Incorporated in 1985, Demotech, Inc. is a financial analysis and actuarial services firm that provides Financial.
Best Practices for Service Providers / Accounting & Financial Reporting Issues Facing the Industry (GAAP, SAP, IFRS) Donald B. Rousso Paul Shanbrom Travis.
For broker-dealer use only. Not for use with the public. PROCU 2012 ANNUAL MEETING REGULATORY UPDATE Michael D. Burns Chief Compliance Officer October.
Private & Confidential1 (SIA) 13 Enterprise Risk Management The Standard should be read in the conjunction with the "Preface to the Standards on Internal.
Assessing ERM Practices ERM Working Group North Carolina State University Raleigh, February 24 th 2006 Copyright © 2005 Standard & Poor's, a division of.
© 2011 National Association of Insurance Commissioners U.S. Solvency Modernization Initiative Christina Urias Director, Arizona Department of Insurance.
Insurance and ERM: Some Global Trends Craig Thorburn Lead Insurance Specialist, The World Bank Policy Advisory Consultant, CGAP
© AMERICAN COUNCIL OF LIFE INSURERS 101 Constitution Ave., NW, Washington, DC Solvency Modernization and Corporate Governance ACLI’s Compliance.
Macroprudential Surveillance and Insurance Supervision Commissioner Susan Donegan November 19, 2014 Regional Training Seminar for Insurance Supervisors.
THE REGULATORY ROLE OF THE ACTUARY Chris Daykin UK Government Actuary.
Merrill Lynch Matt Western ACG2021 Section 002. Executive Summary Overall Merrill Lynch had a great year in They increased their revenues 11% from.
Solvency II Andrew Mawdsley. Overview The challenges in preparing for Solvency II Adequate financial resources Supervisory Review Process Disclosure Timeline.
The Actuarial Role on Risk-Focused Examinations Rebecca Freitag, FCAS, MAAA Merlinos & Associates IASA GEORGIA CHAPTER Fall Education Conference October.
Internal/External Audit and Internal Controls February 23, 2000 David Dudley Federal Reserve Bank of NY.
CAS Spring Meeting June 2007 Introduction to ERM …The Measurements, Quadrants, Tools, and Solutions Prof. Mark C. Vonnahme Fox Family Clinical Professor.
Banking and Financial Institutions
1 Issues for Consideration in the Solvency Modernization Initiative Ramon Calderon Deputy Commissioner, California Department of Insurance Chair, NAIC.
PD 8 OSFI Capital Update Stuart Wason Senior Director Actuarial Division OSFI CIA Appointed Actuary Seminar September 18, 2009.
© 2008 Towers Perrin ERM 1 – Basic ERM Primer for Reserving Actuaries 2008 Casualty Loss Reserve Seminar Washington, DC September 18, 2008 Tom McIntyre.
Risk Management Bill Ferguson, Ray Farmer, Tim Morris, Marty Wingate Insurance Summit
Building on Our Core Values Building on Our Core Values © 2003 by the AICPA The Sarbanes-Oxley Act.
Macroprudential Surveillance and the NAIC Commissioner Adam Hamm.
Financial Risks David Wong Friday 21 May 2004, Staple Inn Hall wp c.
© 2010 National Association of Insurance Commissioners U.S. Solvency Modernization Initiative Director Christina Urias, Chair Solvency Modernization Initiative.
Insurance Summit 2016 REGULATORY UPDATE. Panel Participants Ray Farmer (Director, South Carolina Department of Insurance) Tim Morris (Hanover Stone Solutions)
It All Starts With Great Corporate Governance
Case Study ABC Insurance is a medium sized company that has successfully sold life insurance products for the past 50 years. It had a conservative risk.
Part II: Regulatory Overview
State Regulation, how would it change your world?
Role of the Board William St. John President & CEO 20/20 Foresight
Session 3 – Risk Management and Internal Controls: Actuary Function ICP 8: Risk Management and Internal Controls 2017 ASSAL Regional Seminar on Training.
Kuveyt Turk Participation Bank
Corporate Governance for Mutuals
IASA Northeastern Chapter Meeting
Presentation transcript:

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation The New World Order in Insurance Regulation: What Boards and Management Need to Know and Why What the Regulator is Expecting Mid-Atlantic Mutual Advantage Convention Baltimore, Maryland

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What is Happening in the Regulatory World There have been seismic shifts in regulatory approach by the NAIC and Insurance Departments RetrospectiveProspective CompanyEnterprise Financial StatementGovernance RulesPrinciples Regulators are expecting more Board involvement in this new regulatory approach Is your management ready?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What are Regulators Looking at Now Corporate Governance – Group level as well as Legal entity level Interviews with Chairman of the Board and Head of Audit Committee as part of Financial Examinations Importance of Audit Committee NAIC Corporate Governance Annual Disclosure Model Act Enterprise Risk Management How does the process work? Is it effective? Is it used by Management and Boards? “Risk Management became Risk Justification”

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What are Regulators Looking at Now Own Risk and Solvency Assessment (ORSA) NAIC Guidance Manual The Proposed NAIC Model Law (first one due in 2015) NAIC Pilot Program Control Environment Board’s need to take on more responsibility Effective or not Boards need to make certain representations to Insurance Departments within Amended Holding Company Law

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What are Regulators Looking at Now (Cont’d.) Capital Management How is this done by Management and Boards Effective or not Group Capital (ORSA) Strategic Management Does the Board have a plan?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives Form B –Annual registration statement new requirements: Financial statements of holding company Statement that the insurer’s board of directors is responsible for and oversees corporate governance

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives New Form F—Enterprise Risk Report Annual confidential supplement identifying material risks within the insurance holding company system that could pose financial and/or reputational contagion to the insurer (enterprise risk management) Form F shall provide information regarding the following areas that could produce enterprise risk: Any material developments regarding strategy, internal audit findings, compliance or risk management affecting the insurance holding company system; Acquisition or disposal of insurance entities and reallocating of existing financial or insurance entities within the insurance holding company system; Any changes of shareholders of the insurance holding company system exceeding ten percent (10%) or more of voting securities;

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives New Form F—Enterprise Risk Report Developments in various investigations, regulatory activities or litigation that may have a significant bearing or impact on the insurance holding company system; Business plan of the insurance holding company system and summarized strategies for next 12 months; Identification of material concerns of the insurance holding company system raised by supervisory college, if any, in last year;

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives New Form F—Enterprise Risk Report Identification of any negative movement, or discussions with rating agencies which may have caused, or may cause, potential negative movement in the credit ratings and individual insurer financial strength ratings assessment of the insurance holding company system (including both the rating score and outlook); Information on corporate or parental guarantees throughout the holding company and the expected source of liquidity should such guarantees be called upon; and Identification of any material activity or development of the insurance holding company system that, in the opinion of senior management, could adversely affect the insurance holding company system.

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives ERM Framework Description of the Risk Management Policy Quantitative Measurements of Risk Exposure in Normal and Stressed Environments Group Risk Capital Assessment Prospective Solvency Assessment Who is required to File (Exemptions) ORSA will be unique for each company Evergreen Approach to ORSA Group or Legal Entity Level Own Risk and Solvency Assessment (ORSA) proposal

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives Risk Management and Own Risk and Solvency Assessment Model Act Vehicle that will be used to require the ORSA Summary Report to be filed Will provide for confidentiality provisions Lead State Concept Effective date-1/1/2015 (Will you be ready??)

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives ORSA Key Questions What is our strategy? What level of risk are we willing to assume in pursuit of this strategy? What are the key risks that could hinder our ability to achieve our strategy? How much capital do we need to cover those key risks? What risks—individually or collectively—would subject us to losses that exceed our tolerance levels? What risk scenarios would cause us to fail or stop operating as a going concern?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives How will Regulators use the ORSA? Details to be worked out Reviewed Company’s ORSA Summary Reports that were submitted voluntarily in 2012 and 2013 Should fit like a glove with our Risk Focus Exam Process Rating Agencies want to know about your ERM Process and I am sure your ORSA/Regulators want to know what Rating Agencies are thinking Quality ORSA and ERM starts with governance and ends with quality of your data

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Risk Management Initiatives What can smaller companies take away from all of this? It is scalable Has your management thought about this

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Why are Regulators Doing This? It is a better regulatory process-looking out of the front of the car window (prospective risk) then looking out of the back window. AIG-Reputational Risk/Group Risk My International Friends (EU, IAIS, G-20)

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What Boards Should Be Doing About All This Change Get educated Set up a Risk Committee of the Board Should we hire or designate a Chief Risk Officer (CRO Council of North America) Is the Board receiving proper Risk Summary Reports from Management

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What Boards Should Be Doing About All This Change (Cont’d.) How does the Board know that the Company’s ERM System is working AIG-Derivatives operation JPMorgan Chase $2B trading loss (Now $5.8B) UBS-Rogue Trader How do we learn from the ERM failure?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What Boards Should Be Doing About All This Change (Cont’d.) Boards need more individuals with an Insurance Regulatory Background-Where do we find them? Should the CEO and Chairman of the Board be split roles? Is your Board receiving updates on Regulatory Issues (Regulatory Risk)? Has your Board ever thought about inviting your Domestic Regulatory to one of your Board Meetings?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Concluding Thoughts from your Regulator: Boards Can Never Fall Asleep

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation What Can Happen if a Board is Asleep at the Switch Information discussed today and the new regulatory model is to prevent Boards from falling asleep Boards should never stop getting educated and asking the right questions What questions were never asked by Boards in the past that should have been: Why are we always reserving at the low end of the actuary’s range? Why are our reserves always deficient? Why does our actuary not give the Board a presentation?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Questions (Cont’d.) Why do we take so much risk on our investments? How do we know we are pricing right? Why do we do business with reinsurers we never heard of? What are we doing about our RBC being below 300%? How often do we waive our underwriting standards? Why are we using an accounting firm we never heard of? Why are we expanding so fast?

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Questions (Cont’d.) Why did we get into a new line of business? Do we need to change management? What is our future? Insolvency

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Solvency Update

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Solvency Update Low insolvency level (low severity also) 7 straight calendar years ( ) without an insolvency of a Pennsylvania domestic insurer First Time in 64 Years! Last Liquidation of a P/C PA domestic: 7/28/2003 Last Liquidation of a Life PA domestic: 7/2/2004 Companies saved in PA since 1997: 102 Streak ended on February 8, 2012-First Sealord (a surety only company) placed into liquidation GAO Report (June 2013)-States did a great job during meltdown

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Insolvencies P & C L & H5 (1 caused by economic crisis) 10 (1 caused by economic crisis) 3323 Title Fraternal Total

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Number of Bank Failures YearBank Failures Source: FDIC Failed Bank List

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Low interest rate environment CATS Reserve adequacy ComFrame Group supervision Regulatory Change Execution of Regulatory Change The many things that keep me up at night The Future of Reinsurance Affordable Health Care Act Feds getting more involved Run-off companies Long-term care insurance Regulatory talent Cyber Risk Can I make it to retirement

What Boards & Management Need to Know and Why August 4, 2014 Stephen J. Johnson, CPA, Deputy Insurance Commissioner Office of Corporate and Financial Regulation Questions?