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This article explores the implementation of Sarbanes-Oxley Act from the viewpoint of a primary insurer, including the challenges faced, key controls identified, and the positive and negative impacts on the company.
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Sarbanes-OxleyA Primary Insurer’s Perspective Sally M. Kaplan, ACAS, MAAA Markel Corporation Tuesday, September 12, 2006
Implementation • First years, 2004 - 2005 • Submitted detailed documentation to Corporate Accounting, Internal Audit, and our External Auditors and Actuaries
Implementation • For the units that I am responsible for, I submitted already-existing documentation. • This occurred by operating unit within Markel
Implementation • Iterative process in which substantial amounts were eliminated and inserted • For example, a lot of our documentation about process was too detailed and was deleted.
Implementation • On the other hand, sections about judgment in the process was virtually non existent in my documentation and had to be added. For me, this was the most challenging aspect.
Implementation • Within the documentation for each operating unit, controls were identified and highlighted • Controls that related to checking the accuracy of the data • Controls that related to accuracy of the pick
Controls- Accuracy of the Data • Basic checks such as, after splitting our analyses by line, program, etc., on the back end do we have the correct premium, paids, and case reserves that tie to ledger?
Controls- Accuracy of the Data • Do the source systems that give us triangles, detailed program info (which is not available in ledger) tie to ledger?
Controls- Accuracy of the Data • Each control had ‘Completed by’ and ‘Reviewed by’ box to be initialed and dated by Actuarial personnel. • This part was relatively easy for me, as I had addressed it in my own process to help analysts in my area for several years prior.
Controls-Do we have a reasonable pick? • We thought a lot about how we can evidence that our picks are actuarially sound, given that we had already proven that the data was correct. • Huge challenge for me
Controls-Do we have a reasonable pick? • Reasonability checks • Manager’s check on each other’s work • Escalation of issues to Chief Actuary • Preliminary meetings with executives in operating units
Controls-Do we have a reasonable pick? • Reasonability checks (contd) - Numerical calculations that we look at from quarter to quarter to check validity of our pick (actual versus expected, comparison to budget, etc.) - We use standard methodology
Controls-Do we have a reasonable pick? • Reasonability checks (contd) • Rolling up to corporate-wide review allows Chief Actuary to provide another high level check • Management’s final judgment on what to book
Identification of Key Controls • We identified the key controls within each operating entity’s process. • These generally were the ones that included the data checks and the review with management within an operating entity.
Implementation: Testing • Quarterly, internal and external auditors would visit my office, copy papers from our binders, and test the key controls.
2006 Revision Process • Spring of 2006 • We took a look at the most serious risks • We streamlined the controls
2006 Revision Process • Separated controls into ‘serious’ and ‘intermediate’ • If we considered a control to address a high risk area, meaning there would be severe consequences if a particular control was not met, we kept that control as a key control.
2006 RevisionProcess • Separated controls into ‘serious’ and ‘intermediate’ (contd) • Intermediate controls are still part of the process in each operating entity but are not subject to testing
2006 RevisionProcess • Established a checklist and put all of the key and intermediate controls in there • Now, quarterly, the actuary shows the checklist to the auditors and says ‘the checklist was completed.’
Positive Outcomes of Sarbanes Oxley • The checklist with the key controls at the top and the moderate tasks listed below has been a great addition to our process. • Beyond focusing only on the high risk controls • Great efficiency tool for areas where there are quick quarter end timeframes, multiple analysts working on a particular operating entity. • Allowed occasionally, where appropriate, an analyst to check work I had completed.
Positive Outcomes of Sarbanes Oxley • Spreadsheet controls • Archive to read only after quarter end • Did a review of who had access to our files • Ensured that versions were named according to the evaluation date of the review
