States have recently changed the way they perform statutory examinations. The National Association of Insurance Commissioners (NAIC) adopted a risk-focused examination approach as the accreditation standard for statutory examinations. One enhancement of the risk-focused approach is that regulators now leverage more work performed by independent auditors and evaluate company controls to gain comfort in areas that present less financial risk. This change allows regulators to spend more time testing areas with greater risk of material misstatement and assess prospective risk. As a result, many areas that involve the use of actuarial estimates are now getting more scrutiny.
By gaining a better understanding of how examiners assess risk, company actuaries will be better prepared for the examination and be more effective at demonstrating that company controls mitigate risk. This may result in a more efficient examination process by reducing the testing procedures required by the examination team. The information resented in this paper will prepare actuaries to expand their role assisting the examiner-in-charge (EIC) with all phases of the examination. An enhanced understanding of the risk-focused examination process will allow actuaries to assist with the risk assessment process, develop risk-focused testing plans for loss reserves, and add value in other actuarial areas of the examination.
Keywords: Reserving
