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Americas edition • December 2006

The Americas Insurance digest is published three times a year, to address the key issues driving the insurance industry. If you would like to discuss any of the issues raised in more detail, please contact the individual authors or the Editor-in-chief, whose details are listed at the end of each article.

We would also welcome your feedback and comments on Insurance digest, and as such, we enclose a Feedback Fax Reply form. Your feedback will help us to ensure that our publications are addressing the issues that you feel most strongly about.

Insurance digest • PricewaterhouseCoopers �

Americas edition • December 2006

Editor’s comment 2John S. Scheid

Update on accounting, reporting and regulatory developments for insurance companies 4Donald F. Farnan, Jamie Miller, Marc F. Oberholtzer, David Y. Rogers and David C. ScheinermanRegulatory developments affecting insurance companies are changing daily, and both business and accounting issues are more complex than ever. Insurance company boards of directors have acquired increasing oversight responsibilities under new federal laws and regulations. This article summarizes highlights of the insurance program at the 2006 Financial Services Audit Committee Forum.

Principles-based approach to statutory life reserves �0John W. Morris, Marina Adelsky and Allan W. RyanAs a regulated industry with actuarially determined liabilities, life insurance companies have traditionally calculated statutory life reserves based on formulas intended to protect consumers by producing consistently conservative results. There is currently a significant effort underway to dramatically alter statutory financial reporting by U.S. life insurers. This article examines the proposed changes.

Lessons learned: �0 warning signs – and �0 best practices �6John S. ScheidObservers of troubled insurance companies have begun to identify operating or behavioral patterns that can help serve as red flags for boards of directors. A list of top �0 warning signs that directors should be on the watch for and which should serve as early indicators of potential trouble are outlined in this article.

Brazilian insurance market review and comment 20Carlos Eduardo Sá da MattaThe insurance industry in Brazil is undergoing sweeping changes as regulators issue a broad array of new rules designed to more closely align industry practices with international standards and to prepare for privatization of state-owned reinsurance monopoly IRB Brasil Re. This article examines the many challenges facing Brazilian insurers as the market moves toward convergence with international practices.

Successfully managing today’s regulatory examinations: Getting it right is more important than ever 24Stephen W. Koslow and Lance YoutsThe changing market conduct landscape has caused many insurance companies to re-evaluate the methodologies utilized to manage regulatory examinations and significantly increase the formality and rigor around a company’s management of these examinations. This article discusses the exam management enhancements currently being implemented by insurance companies.

Contents

After some steady increases in the financial markets and the perfectly benign hurricane season many in the industry have reported strong results for the third quarter and many

seemed poised to best expectations for the full year.

Clearly, change has been the stable watchword throughout this year with many in the commercial and personal lines markets adjusting from the two previous unprecedented years of catastrophe losses. New capital again flowed into the industry through several different forms.

Regulation continues to be a topic of frequent discussion, together with enterprise-wide risk management and capital management. In this issue of Americas Insurance digest, we offer a few perspectives on change in the world of

accounting, regulatory developments, board governance, and from within the Brazilian insurance market.

I hope you find the articles of interest. As in the past, please continue to provide us with your ideas for future articles and feedback on current topics. You may also be interested in the Asia-Pacific and European editions of Insurance digest, which can be found on our website at www.pwc.com/insurance.

Finally, I hope you have a happy holiday season and a very prosperous New Year!

Sincerely,

John S. Scheid Editor-in-Chief

Tel: �-646-772-306� [email protected]

As 2006 draws to a close, everyone is breathing a sigh of

relief and remarking what a difference a

year makes!

Editor’s comment

JOHN S. SCHEID: CHAIRmAN, AmERICAS INSURANCE GROUP

Insurance digest • PricewaterhouseCoopers2

JOHN S. SCHEID: CHAIRmAN, AmERICAS INSURANCE GROUP

Insurance digest • PricewaterhouseCoopers 3

Update on accounting, reporting and regulatory developments for insurance companies

AUtHORS: DONALD F. FARNAN, JAmIE mILLER, mARC F. OBERhOLTzER, DAvID Y. ROGERS AND DAvID C. SChEINERmAN

Insurance digest • PricewaterhouseCoopers �

UPDAtE ON ACCOUNTING, REPORTING AND REGULATORY DEvELOPmENTS FOR INSURANCE COmPANIES

transparency of actuarial analysis

Since enactment of the Sarbanes-Oxley Act 2002, the actuarial process for insurance companies is subject to greater scrutiny and needs to become significantly more transparent to meet regulatory and investor demands. Risk is the key element in this analysis. Actuaries need to communicate ‘not so much how the clock works but more importantly, what time it is,’ disclosing risk in the balance sheet such as reserve estimates and how such estimates are developed.

There are a number of areas where transparency can be improved, including loss reserves (the inherent risk in estimates); special exposures, such as asbestos or environmental coverage; unamortized deferred acquisition costs; policyholder benefit liabilities; and intangible assets arising out of business combinations.

Information that would be valuable for actuaries to communicate includes sources of earnings analysis, actuarial sensitivities, reinsurance information and ranges of estimates (instead of relying on a single point).

Risk and controls in actuarial processes

Actuarial processes have inherent risks given the significant degree of judgment often required in developing balances. however, the actuarial process could be made less subject to risk and uncertainty, although improvements have been put in place under Sarbanes-Oxley. In addition, there are a number of common risk points that could be better identified, including data handoffs, changes in valuation systems or processes, spreadsheet control and accuracy of claim information.

Less obvious actuarial risks involve situations in which changes – new products, mergers and acquisitions – scramble the facts on the ground. Given the rapid pace of change in the industry, companies need to be cognizant of such risks.

A company can reduce actuarial process risk by involving third-party actuaries in reviews, reducing multiple systems and approaches, eliminating spreadsheets and strengthening documentation.

Improvements in actuarial processes

On a daily basis, actuaries make significant judgments in which objectivity is imperative, including loss reserve and loss adjustment expense reserve estimates, risk transfer and the assumptions used to amortize deferred acquisition costs.

Process improvements can reinforce objectivity in these situations. Although Sarbanes-Oxley implementation has been criticized for its costs, a number of control improvements have been made throughout the industry as a direct result of its implementation. Practices such as experience studies; often overseen by ‘management reserve committees’; third-party reviews; and benchmarking; and the separation of duties (ensuring that pricing actuaries are not involved in setting reserve estimates) all are being used to enhance objectivity.

Board and audit committee members

Boards of directors and audit committees have taken on increased oversight responsibilities during the past several years, and the composition of committees has

PricewaterhouseCoopers’ 2006 Financial Services Audit Committee Insurance Industry program held in October 2006, featured discussion and panels composed of PwC partners, directors and audit committee members specialized in insurance industry matters. The presenters addressed key issues, including the current legislative and regulatory landscape. The following summarizes their discussion of key issues.

‘Not so much how the clock works but more importantly, what time it is.’


UPDAtE ON ACCOUNTING, REPORTING AND REGULATORY DEvELOPmENTS FOR INSURANCE COmPANIES continued



broadened to provide expanded opportunities for directors with different backgrounds to deploy their expertise. however, it is rare for an audit committee member without an insurance industry background, even one with significant financial experience, to immediately feel comfortable with the issues, given the technical nature of actuarial work. Increasingly, companies are adding former regulators to boards for knowledge and experience in addressing the regulatory issues that dominate concern.

One challenge in finding qualified board members is the level of disclosure required for such matters as director trading and transactions. much of this information traditionally had been considered to be personal in nature, and disclosure can be an issue for some prospective directors.

Staffing

Boards of directors need to look at the strength of management, not only at the chief executive officer and the finance-related officer levels but also at the general counsel, chief technology officer and others whose work affects regulatory and compliance matters. Directors also need to think about the quality of their company’s accounting technical staff, who are on the front lines and have considerable responsibility and discretion in decision making.

The quality of internal audit staff has improved markedly in recent years, partly as the result of Sarbanes-Oxley’s demands. One valuable practice for producing further improvement is to bring in an outside accounting firm –

not the external auditor – to evaluate internal audit practices and personnel and to recommend improvements.

SEC accounting and reporting developments

The U.S. Securities and Exchange Commission (SEC) is focused on disclosures around actuarial estimates, and expects disclosures that assess the quality of estimates and explain variations. The SEC also expects quantified sensitivity analyses at the line of business level around the assumptions that go into actuarial estimates.

Reinsurance is another area where the SEC is seeking greater transparency. This focus on greater transparency includes inquiries about how reinsurers verify the accuracy of information received from cedents and how this information affects reinsurers’ financial statements. The SEC also has recently focused on how cedents’ reinsurance strategies are changing in response to the hardening insurance market.

The SEC has become increasingly clear in its expectations for explanations of why and how a company uses a particular non-GAAP measure or discussions of changes in internal controls.

The statement of cash flows is under recent SEC scrutiny and there have been restatements in several industries, although it has not yet had a broad impact on insurance companies. Audit committees need to be familiar with FAS 9�, Statement of Cash Flows, which provides guidance on the classification between operating, investing and financing

cash flows and ensure the company has done, or is doing, a robust analysis of the cash flow statement.

Stock option backdating continues to be front-page news and is the subject of growing attention by the SEC and other legal and regulatory bodies. Audit committees need to understand their company’s process for granting stock options to executives and employees and be prepared for heightened scrutiny.

FASB activities

The Financial Accounting Standards Board (FASB) has issued several new pronouncements during 2006 and has additional projects underway that could affect insurance companies.

historically, companies have applied a variety of methods when recognizing tax positions in financial statements. FIN 48, Accounting for Uncertainty in Income Taxes, will be effective January �, 2007, and significantly alters this accounting. FIN 48’s transitional provisions allow the impact of adoption to be recognized as a cumulative effect to retained earnings. Financial impacts identified after the initial adoption of FIN 48 will be recognized through the income statement, so it will be important to be complete in identifying uncertain tax positions and measuring the benefit at the adoption date. FIN 48’s application will require significant judgments and estimates to assess uncertain tax positions, so audit committees must determine whether the company has the

necessary resources to get this right. PricewaterhouseCoopers publications ‘Lifting the Fog’ and ‘FIN 48 Client Action Plan’ provide help with implementation of the new guidance.

FAS ��8, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, will be effective for publicly traded companies for the end of fiscal year 2006. It requires that amounts previously reported in the footnotes be recognized in the balance sheet at the end of 2006. While industries with huge unfunded pension plans will see significant impacts on equity, most insurance companies should see smaller impacts, typically somewhere between � percent and 3 percent of surplus on average. Audit committee members should understand the balance sheet impacts of the new standard and ensure that management has assessed the impact on any existing debt covenants.

The Risk Transfer Project, also known as the bifurcation proposal, is underway. The result of recent risk transfer-related restatements by property-casualty companies, the project asks whether insurance and reinsurance contracts, which typically contain both insurance risk transfer and financing elements, should be divided into separate components. Industry sentiment is against bifurcation, and the FASB staff is now reviewing the comments.

Although documentation and controls around the assessment of reinsurance contracts and risk transfer are more robust than they have ever been, companies still


need to be diligent in reviewing reinsurance contracts, particularly those that contain risk-limiting features, and communicating their findings to the audit committee.

Other recent FASB issues:

FAS ��, Accounting for Certain hybrid Financial Instruments, may have a significant impact on insurance companies that invest in mortgage-backed securities;

FAS ��7, Fair value measurement (issued September 2006 and effective January �, 2008) provides guidance on determining fair value. Companies should be assessing where they use fair value now in financial reporting and how the standard will affect financial statements; and

A project now underway will provide authoritative guidance on the revenue and loss recognition model for financial guarantee insurance.

NAIC Activities

During 2006, the National Association of Insurance Commissioners (NAIC) finalized the long-anticipated update to the model audit rule. The changes will not take effect until 20�0 and there still is industry opposition even though it represents a severely diluted equivalent to Sarbanes-Oxley for non public insurance companies.

There has been significant controversy regarding the risk-based capital (RBC) charges

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associated with hybrid securities. Initially, the NAIC believed that certain of these securities should be classified as common stock, which has the highest RBC charge. however, the NAIC agreed, on a temporary basis, to generally classify these securities as preferred stock.

Conclusions

In the four years since the passage of Sarbanes-Oxley, insurance companies and their boards of directors have amassed significantly enhanced

responsibilities under new laws and regulations. The changes put in place by Congress, the SEC and other regulatory and legal bodies place significant additional demands on insurance company boards, which need to ensure that they fully understand the new requirements, form the relationships needed for compliance and devote sufficient resources to compliance activities. Careful implementation of these activities can not only ensure compliance, but also enhance business operations through greater transparency and controls.

AUThORS

Donald F. FarnanPartner, Insurance National Risk & Quality Services Tel: � 973 236 4�[email protected]

marc F. OberholtzerDirector, Actuarial & Insurance management SolutionsTel: � 267 330 24��[email protected]

Jamie millerPartner, Financial Services Advisory PracticeTel: � 3�2 298 [email protected]

David C. ScheinermanPartner, Actuarial & Insurance management SolutionsTel: � 860 240 [email protected]

David Y. RogersPartner, Leader, US Life Actuarial & Insurance management SolutionsTel: � 6�7 �30 73��[email protected]


Principles-based approach to statutory life reserves

AUtHORS: JOhN W. mORRIS, mARINA ADELSkY AND ALLAN W. RYAN

Insurance digest • PricewaterhouseCoopers ��

Although significant groundwork has been laid to develop the foundation of a new reserve approach, the reader is cautioned that this article represents a snapshot of where this process stands at the time of writing and that the proposed framework is an evolving one.

Background

As a regulated industry with actuarially determined liabilities, life insurance companies have traditionally calculated statutory life reserves based on formulas intended to protect consumers by producing consistently conservative results. For many years, this system worked well. Prior to the ‘computer age,’ insurance products, while inherently complex, lent themselves to actuarially determined reserves based on interest and mortality or morbidity assumptions that were relatively well understood and could be applied consistently in practice. Typical life insurance products contained little flexibility to the policyholder and as such, liability cash flows were relatively predictable. Participating policies did pay dividends based on the insurer’s experience, but this process was well understood and generally did not complicate the reserve setting process. In addition, interest rates were relatively low and constant. The asset side of insurance company

balance sheets consisted primarily of fixed income securities such as bonds and mortgages. Derivatives and other esoteric investments were uncommon.

Starting primarily in the early �980s, accompanied by rising interest rates, individual life products began to evolve by reflecting actual investment and other experience results in policyholder benefits through ‘unbundled’ universal life type insurance contracts. Flexible premium and non-guaranteed benefit provisions of these contracts made it more and more difficult to fit the traditional formulaic reserve models. Also, the volatile interest rate environment of the �980s brought attention to the critical need for life insurance companies to develop more sophisticated asset/liability management capabilities. Product innovation on both the liability and asset sides continued with more complex products including competitive term insurance, universal life with secondary guarantees and variable products. The original designs of variable products were ‘simpler’ in that investment risk was passed to the policyholder, but have evolved to become more complex as various death benefit and ‘living’ guarantees were added. State insurance regulators and the National Association of Insurance Commissioners (NAIC) responded repeatedly with new regulations

and amendments to the existing requirements in order to deal with the ever changing products.

The traditional statutory formulaic approach to establishing reserves was particularly ill suited toward capturing the true risks of new products such as variable annuities with significant ‘tail’ risks, especially those including death and other benefits dependent on market performance, universal life contracts with no lapse guarantees, and certain types of term insurance. As a result, writers of variable annuities, universal life and term insurance products became inventive at designing products that complied with the letter of the valuation law, but allowed reserves to be set at levels below what many regulators felt were prudent. This was in part due to the fact that statutory reserves are based on ‘conservative’ assumptions with respect to mortality and interest, but assume no lapses. Ignoring future projected lapses in calculating reserves is typically conservative, but in the case of certain products, it can have the opposite effect. Regulators responded by enacting what has evolved into the so called Regulation XXX. While attempting to adapt to new products, requirements such as Regulation XXX are just more complex examples of a formulaic approach, with some minimal amount of actuarial judgment allowed.

PRINCIPlES-BASED APPROACH TO STATUTORY LIFE RESERvES

There is currently a significant effort underway to dramatically alter statutory financial reporting for United States life insurers. Proposed changes, supported by the insurance industry and reluctantly, if not enthusiastically, by insurance regulators, would move the determination of statutory insurance contract liabilities from a formulaic to a principles-based approach (PBA).

For many years, this system worked well.

Insurance digest • PricewaterhouseCoopers�2

PRINCIPlES-BASED APPROACH TO STATUTORY LIFE RESERvES continued

There have been some limited ‘principle based reserve’ developments that are part of the statutory valuation system today. The New York State Insurance Department was a pioneer in this area with respect to recognizing changing interest rates in reserve methodologies. One of the driving forces behind this was the rising interest rates of the early �980s. New York allowed the use of higher interest rates in statutory valuation of annuities when the actuary included an analysis of the assets supporting the reserves. This evolved into the now ubiquitous ‘asset adequacy analysis’ that is currently required as a minimum floor on the overall sufficiency of the formula reserves.

On the related topic of required surplus or risk based capital (RBC), the NAIC’s adoption in 200� of the ‘C3 Phase II’ for variable annuities is a specific ‘principles-based’ approach, which involves the use of stochastic analysis and actuarial judgment in setting the assumptions to be used in that analysis.

Current framework for principles-based approach (PBA)

The current proposed PBA as it stands now consists of a set of principles that will rely on actuarial judgment rather than entirely on a formulaic approach. The current proposals include base reserves calculated using ‘prudent best estimate assumptions,’ as well as stochastic analysis performed on groups of policies to determine whether additional reserves are needed to reflect the inherent risk of the products. There is also a proposal for an independent review of the actuary’s work

Insurance digest • PricewaterhouseCoopers �3


performed by another qualified actuary (the ‘Principles-Based Approach Review’ or PBAR).

The American Academy of Actuaries (Academy) is one of the key parties involved in the development of PBA. The Academy is the umbrella organization representing the actuarial profession in the United States, with a focus on professionalism and public policy. Several committees under the Academy’s Life Practice Council are taking a leading role:

Risk management and Financial Soundness Committee;

Life Reserves Work Group;

variable Annuities Reserve Work Group; and

Regulatory Interface, Peer review and Governance Work Group.

Working closely with the NAIC, and the NAIC’s Life and health Actuarial Task Force, the basic principles have been established, as discussed below.

At this time the NAIC has developed drafts of additions and changes to model laws and regulation to bring PBA under the Standard valuation Law. These drafts, which would have to be adopted by the individual states, define a principles-based approach as one that:

Captures all of the material financial risks, benefits, and guarantees associated with the contracts, including the ‘tail risk’ and the funding of the risks.

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Utilizes risk analysis and risk management techniques to quantify the risks and is guided by the evolving practice and expanding knowledge in the measurement and management of risk. This may include, to the extent required by an appropriate assessment of the underlying risks, stochastic models or other means of analysis that properly reflect the risks of the underlying contracts.

Incorporates assumptions and methods that are consistent with, but not necessarily identical to, those utilized within the company’s overall risk assessment process.

Permits the use of company experience, based on the availability of relevant company experience and its degree of credibility, to establish assumptions for risks over which the company has some degree of control or influence.

Provides for the use of assumptions, set on a prudent best estimate basis, that contain an appropriate level of conservatism when viewed in the aggregate and that, together with the methods utilized, recognize the solvency objective of statutory reporting.

Supporting the model regulation are several draft actuarial guidelines, which are in various stages of completion and work on them is continuing.

The Actuarial Standards Board (ASB), an autonomous unit of the Academy, develops professional standards governing actuarial work in the United States. A task

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force of the ASB is currently working to develop standards of practice in conjunction with the new model Regulation. Coordination between the regulators and actuarial profession has worked well in the past, most recently with the development of Actuarial Standard of Practice No. 40, which relates to Regulation XXX.

The Society of Actuaries, the organization recognized for the education of life actuaries in the United States and Canada, also supports the initiative through research, such as experience mortality tables to support the selection of principles-based assumptions.

Other interested parties include the insurance industry, which would generally like to see reserves that protect the policyholder, but are not overly redundant and therefore expensive in terms of capital requirements. As expected, the rating agencies are keenly interested in the project as is the trade association American Council of Life Insurance, which has been active in the development of principles.

Issues to consider

Given the US environment, where statutory regulation is left to the fifty-three separate governing bodies of states and US territories, forming a consensus can be a difficult process. In addition, concerns from regulators have resulted in fairly prescriptive rules underlying the principles-based approach. Leading states such as New York typically have their own agenda, and in many cases have set higher standards than other states.

Federal income tax issues are another potential roadblock. Under current Internal Revenue Service (IRS) rules, life insurance company taxable income has been driven by tax basis reserves, as defined in the Internal Revenue Code and supporting directives. The approach is formulaic and parallels current statutory reserve bases, but often results in consistently lower reserves. how a principles-based approach will integrate with the tax laws remains to be seen.

Under the current US financial reporting structure, most insurers report results on the basis of US GAAP as well as statutory. The principles-based approach will not change the dual reporting, although in certain aspects statutory reporting will be more like GAAP. It is interesting to note that US GAAP has effectively moved toward allowing stochastic approaches in determining reserves, an example being the application of the American Institute of Certified Public Accountants’ (AICPA) SOP 03-� to the valuation of variable annuity death benefits.

International Financial Reporting Standards (IFRS) are quickly evolving in their approach to valuation of insurance contracts, as the standard setters consider several issues similar to the principles-based approach: risk adjustment, revenue recognition, policyholder behavior, company experience, and adequacy testing. As both approaches are developing within the same time frame, each can benefit from the other with respect to the perspective and expertise obtained in resolving challenging issues.


Enthusiasm from all sides of the issue for changing the valuation requirements for life insurance companies is at an all-time high. however, because insurance is regulated by the states, the process for making changes is inherently slow. There is a possibility that the NAIC may adopt the reserve changes for variable annuities in 2006 with an effective date in 2007. In addition to the variable annuity proposals, significant resources are being devoted to a principles-based approach for life insurance that could closely follow the variable annuity proposals. Similar changes to other annuity and health reserving requirements are likely to be addressed at least a year or two later. This process could be extended further if regulators for the various states fail to quickly come to agreement on a number of significant issues.

What should life insurance companies be doing now?

It is important to stay tuned to current developments. Specifically, this would include:

monitoring NAIC and other organizations’ efforts;

Participating in industry committees and professional organizations;

Sharpening skills to perform broader and more credible experience studies and to blend company experience with industry studies;

Refining models and methodologies for stochastic testing, including improving transparency;

Preparing for both product line level analysis and aggregating company wide results;

Considering the requirements of regulators and auditors and the need for transparency in the implementation of a new complex reserving process; and

Working with valuation system vendors to anticipate and prepare for needed system changes.

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Final thoughts

It has been more than four decades since Bob Dylan first recorded ‘The Times They Are A-Changing’. For those of us involved in the life insurance industry, where we have experienced relatively little change since then, our changing times may be just beginning. If PBA plays out the way the industry hopes and expects, the next few years will likely present a formidable challenge to the industry in developing, testing, implementing and administering the biggest change to the industry during our working lifetimes.

however, adoption of a principles-based approach is not a ‘done deal’ and it is still far too soon to know what the final product will include. One of the questions that is still unanswered is how much ‘actuarial judgment’ will regulators allow? historically, including recent RBC changes, regulators have not felt comfortable with a pure PBA and will likely include, at least initially, a relatively high minimum reserve calculation layered onto the PBA calculations.

Another yet unresolved issue is transition. On one hand PBA works best on a company’s entire portfolio of business. On the other hand, changes to valuation standards are typically only applied to policies issued after the effective date of the change. Current proposals for applying PBA to reserves are mixed on this issue. The draft proposal for variable annuities is expected to apply to current in force policies whereas the draft proposal for life insurance stipulates that the PBA reserve requirement will only apply to new business issued after the effective date of the change. The PBA for required capital is expected to be applied to all in force business once adopted. however, these implementation requirements could change prior to final adoption.

Will the next few years for the life industry follow Bob Dylan’s lyrics? Or will the industry heed the advice of Danny Devito’s character in L.A. Confidential who said, ‘Something has to be done, but nothing too original, because hey, this is hollywood?’


AUThORS

John W. morrismanaging Director, Actuarial & Insurance management SolutionsTel: � 6�0 269 3686 [email protected]

Allan W. RyanDirector, Actuarial & Insurance management SolutionsTel: � 267 330 �[email protected]

marina AdelskyDirector, Actuarial & Insurance management SolutionsTel: � 646 47� �[email protected]

Insurance digest • PricewaterhouseCoopers ��


Lessons learned: �0 warning signs – and �0 best practices

AUtHOR: JOhN S. SChEID


hard as it is to believe, a generation ago insurance was considered to be one of the most tranquil sectors of the financial services industry, a sleepy place where change came slowly and stability was the norm. Fast-forward a couple of decades, and those of us in the insurance industry are reminded of the ancient Chinese curse, ‘may you live in interesting times.’

Innovative products, ingenious financial models and new risk management tools have transformed the insurance industry’s ability to better fulfill its historical role of protecting its customers from the vicissitudes of life. Yet the industry also has seen unprecedented challenges, ranging from expanded regulation to high-profile litigation, to unparalleled media and investor scrutiny.

On the whole, the industry has responded well to the demands placed upon it. however, individual companies have run into often-severe problems with regulators, investors, financiers, the courts and other stakeholders and overseers. Looking at these troubled insurance companies retrospectively, observers are identifying operating or behavioral patterns that can serve as red flags for boards of directors.

The following are the top �0 warning signs that directors should be on the watch for, which should serve as early indicators of potential trouble are:

Directors not challenging management: Since this advice is geared to board members, let’s start with their role. Among the first signs of potential trouble at an insurance company are directors who are unwilling to challenge management, especially on such matters as strategy, succession, or transactions. This is especially problematic if the CEO has a habit of controlling the agenda or bullying management/directors.

Limited understanding of the business: Insurance has its own complex business models and unique nomenclature, and some outside directors lack the necessary understanding of its strategy, competitive environment and value chain. Without that knowledge, they are ill equipped to evaluate and make key business decisions.

Weak corporate officers: Insurance companies need strong personnel filling key sub-CEO positions such as general counsel, internal auditor, chief actuary and chief accounting officer, and these executives need to be kept in the loop by the CEO and CFO. If they are not, they may be missing emergent problems.

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Lack of focus on the balance sheet: most boards focus on the profit and loss statement, but do not scrutinize – or even understand – the balance sheet. The balance sheet can reveal hidden problems, such as credit issues or excessive uncollected reinsurance recoverables.

Outdated accounting systems: Unlike banks and most other financial services companies that close their books monthly, some insurers still close only quarterly. This makes it much more difficult for directors to get timely, accurate financial and business information and makes it harder to rapidly identify and respond to developing problems.

manual transactions and top-side adjustments: Late-breaking and top-down entries are signs of, at best, problems with daily record keeping procedures and, at worst, are indications that management could be manipulating financial or other performance results.

Unresolved immaterial adjustments: The summary of unadjusted differences schedule is a useful indicator of staff capability. If the list is lengthy, then it could be symptomatic of a lack of managerial discipline, a shortage of accounting resources or inadequately skilled personnel.

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lESSONS lEARNED: �0 WARNING SIGNS – AND �0 BEST PRACTICES

‘May you live in interesting times.’

As the insurance industry’s ability to better fulfill its historical role of protecting its customers has been transformed by new risk management tools, increasingly ingenious financial models and innovative products, it has also faced unprecedented challenges ranging from expanded regulation to high-profile litigation to unparalleled media and investor scrutiny. Observers of troubled insurance companies have begun to identify operating or behavioral patterns that can serve as red flags for boards of directors.


lESSONS lEARNED: �0 WARNING SIGNS – AND �0 BEST PRACTICES continued

Oral agreements, unusual business structures or side letters: Sometimes management seeks to boost short-term earnings by deferring risk or not fully transferring it to reinsurers. Boards, especially audit committees, need to protect company shareholders by inquiring about the reinsurance contracts of management and the auditors.

Poor risk management process: Insurance is all about taking on risk but it is essential that the risk be properly underwritten, priced, reserved for and aggregated. The best companies are driven by strong internal risk management teams that keep them on the right path.

Inadequate due diligence on acquisitions: Insurers should enter into a transaction for only one reason: because it benefits shareholders or policy owners. Too often, transactions are entered into not because they make lasting strategic sense but because they provide a short-term fix or revenue boost. The newspapers and trade press regularly feature stories about acquisitions that have turned out badly for reasons ranging from overpayment to inadequate reserves to significant unidentified risks – all of which should have been flagged during the due diligence process.

These are a few warning signs that insurance company boards need to be aware of. But what about the other side of the

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equation? What can boards do to strengthen management practices? here are �0 best practices that boards can quickly implement to enhance how their business is run (and that smart managers will put in place before their boards tell them to do so):

Understand and respond to concerns expressed by analysts: Analyst reports provide some of the best third-party critiques of corporate America, and boards need to read the reports and commentary by analysts covering their competitors as well as their own company – and have management respond to any weaknesses identified.

Implement a strong and effective general counsel: Good legal counsel is even more important in avoiding problems than it is at solving them. Lead in-house counsel needs to be fully-qualified, given adequate resources and empowered to respond to issues as they arise.

hire quality people for internal auditor, chief accounting officer and chief actuary: Companies all too often focus only on the chief financial officer, but it is equally important to have a deep bench of finance officers, both to run the business today and to serve as potential leaders for tomorrow.

Build strong relationships with sub-CEO officers: The board and its committees need to meet with sub-CEO officers regularly, preferably in

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executive session, to get their unvarnished opinions on relevant matters.

Understand the financial closing process: The board needs to fully understand the closing process – how it works, how robust it is, what analysis is performed. With technology expanding the possibilities for transparency, boards should drill down into the process to reach their own conclusions about managerial judgments.

Review reports on the status of unreconciled balance sheet accounts: The board should receive regular – at every meeting – reports of unreconciled premium receivables, unreconciled reinsurance recoverables and similar data, together with projected time frames for when the reconciliations will be completed. keeping on top of these potential risk areas can help significantly manage risk.

Review SEC Staff Accounting Bulletin 99 analysis: The SEC requires that registrants assess the materiality of errors that have been found or of adjustments that have not been booked. The board should be able to review these analyses and be comfortable that these matters are being appropriately addressed.

monitor implementation of key projects and systems: In recent years, almost every company has integrated acquisitions, introduced new technologies, or upgraded systems. These are complex undertakings, and boards

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need to understand the plans and the expectations, be able to monitor progress and evaluate results.

Evaluate financial reporting fraud risk assessment: management needs to identify potential risk areas for fraud – for example, performance-based compensation structures that could tempt individuals to manipulate results – and then explain the steps it takes to prevent such exploitation.

Build and maintain an effective whistle-blower process: Some board members, corporate officers themselves, are uncomfortable with whistle-blower programs. Yet, if heeded, whistle-blowers can provide one of the best early-warning systems for boards, helping catch problems before they evolve into full-blown crises.

This short list of possible warning signals and fixes is only a start. more important than any of them is an alert, informed and committed board of directors. The best companies, in any industry, are led by people of unquestioned professionalism and integrity, and such leadership starts at the top with the board. If there is one thing that we have learned in our industry during the past several years, it is that when the buck stops, it ultimately stops with the board.

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lESSONS lEARNED: �0 WARNING SIGNS – AND �0 BEST PRACTICES continued

AUThOR

John S. ScheidChairman, Americas Insurance GroupTel: � 646 772 306�[email protected]

Brazilian insurance market review and comment

AUtHOR: CARLOS EDUARDO Sá DA mATTA

Insurance digest • PricewaterhouseCoopers 2�

The insurance industry in Brazil is undergoing sweeping change as regulators issue a broad array of new rules designed to more closely align industry practices with international standards and to prepare for privatization of state-owned reinsurance monopoly, IRB Brasil Re.

Brazil is one of only three nations in which the federal government controls the reinsurance industry. The proposed law under which IRB Brasil Re will become a private company is still under discussion in the National Congress. meanwhile, the company itself is undergoing extensive restructuring to make it more competitive in an open market. The new law provides that regulatory oversight of reinsurance will be placed in the hands of the industry’s policy making body, the National Private Insurance Council (CNSP). Once IRB Brasil Re is privatized, the reinsurance market will then be open to other companies interested in operating in the Brazilian market.

meanwhile, CNSP and Brazilian insurance industry regulator Private Insurance Superintendency (SUSEP), have issued many far-reaching new rules affecting products, services, accounting, auditing, management practices and operations. Taken as a whole, the new regulations are designed to better identify and manage the

risks associated with each company’s operations and to bring the operations of these companies more into line with international business practices.

The following is a review of the key regulatory moves taken in recent years, followed by a look at new regulations now under consideration.

Improved internal controls A 2004 SUSEP regulation (Circular 249/04) requires insurance, premium bond (capitalization entities), and open capital pension funds to improve their internal controls in three key areas: core activities, information technology and compliance with laws and regulations. The new rules require that insurers:

Define the activities and levels of controls for all relevant businesses;

Establish the objectives of the control mechanisms and their procedures;

Systematically verify the adoption of, and compliance with, the procedures defined using their internal audit department performing twice a year reports and also external audit reports reviewing rules and requirements filed by the Insurance companies;

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Continually assess the different types of risks faced by the company;

monitor and implement compliance policies and procedures and review them every six months;

Implement a fraud prevention policy; and

Implement a risk subscription policy (underwriting risks, an initial process of insurance risk analyses).

The regulations require that an internal audit function must systematically monitor the establishment of the internal control system and that internal audit play a key role in each insurer’s corporate control environment, issuing semiannual reports on examinations made. The reports must include a description of deficiencies discovered, a timetable for corrective measures and management’s comments on the deficiencies identified.

Concurrently with this regulation, SUSEP created a questionnaire related to risks of subscription (underwriting risks), which company management must complete annually and file with the regulator.

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BRAzIlIAN INSURANCE mARkET REvIEW AND COmmENT

The insurance industry in Brazil is undergoing sweeping change as regulators issue a broad array of new rules…

As new regulations help transform the Brazilian insurance industry and more closely align industry practices with international standards, Brazilian insurers clearly face many challenges in revising a host of operating, accounting and financial management procedures.


BRAzIlIAN INSURANCE mARkET REvIEW AND COmmENT continued

In another regulation aimed at risk analysis and control, SUSEP requires insurers to provide a mapping of control activities related to information technology and significant accounts in a manner similar in concept to Section 404 of the U.S. Sarbanes-Oxley Act, in which regulators established that the insurance companies have to have well documented all key controls used to manage relevant accounts and systems.

Role of external auditor meanwhile, CNSP has issued a range of new rules regarding the roles and responsibilities of external auditors, many of them similar to regulations instituted or strengthened in recent years in the United States. These rules include:

The designation of a technically qualified member of the board of directors to oversee the work of the external auditors;

Limitations on the types of non audit services that auditors may provide their client companies. For instance, the regulator did not agree that the external auditor in charge perform tax planning, internal audit work, prepare accounts, revaluations and technical provision calculations;

mandatory auditor rotation after five years, effective in 20�0; and

mandatory formation of an audit committee of the board for insurers with adjusted net equity higher than $�00 million

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reals ($23� million) or technical reserves of more than $700 million reals ($330 million).

For their part, external auditors are required to issue the following reports:

An audit opinion on the financial statements;

A detailed report on the adequacy of the accounting procedures and the adequacy of information disclosed in the accounting records;

A detailed report on any instance of noncompliance with legal and regulatory provisions that have or might have material impacts on the financial statements or on the continuity of operations of the audited company; and

A detailed report on the appropriateness of internal controls in light of the risks assumed by the audited entity, highlighting any deficiencies.

Finally, independent auditors will have to go through a new certification and approval process organized by the Federal Accounting Council (CFC), a Brazilian government body, and the Institute of Independent Auditors of Brazil (IBRACON), a non governmental professional group. The CFC has established a joint periodic examination under SUSEP and CNSP rules for auditor certifications to enable certification of insurance external auditors in Brazil, similar to CPA exams in the U.S.

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The last two reports described previously – dealing with regulatory requirements and the appropriateness of internal controls – must be prepared according to detailed procedures based on the methodology of the Committee of Sponsoring Organizations of the Treadway Commission covering such aspects as the overall control environment, risk assessment, control activities and procedures, information processes and reporting and monitoring activities. The focus of these reports is on risks associated with underwriting risks, issuance of policies, procedures to reduce claim process and account provisions estimates, treasury and investment activities and legal compliance.

Custody registration: As of 2007, all insurance polices should be registered in custody institutions (private companies dedicated to control issuance of polices) to improve the market control of insurance business risks and also polices issued by the companies. This is an innovative procedure in Brazilian insurance rules. Financial investment ‘papers’ have the same custody procedures when issued by banks in the financial market;

Actuarial opinion: In another significant change, Brazilian insurers will soon be required to obtain a separate actuarial opinion on the condition of the recorded technical reserves. Specific rules are expected from SUSEP in 2006, but the proposed rules call for the

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actuarial opinion to be issued annually along with the financial statements. The proposed rules also call for a five-year rotation of actuaries, similar to that required of external auditors;

Business plans: As 200� drew to a close, SUSEP released its minimum requirements regarding the three-year business plans that insurers must file with the agency each year-end closing, projecting the detailed income statement figures three years ahead. The business plans prepared by the company must include the following principal information for SUSEP: strategic goals, detailed organizational structures, description of the economic scenario; financial projections (income statement); branches of insurance activity, and the company’s policies on investments, information technology and reinsurance; and

Loans and securitizations: Early in 2006, SUSEP re-issued new regulations authorizing insurance companies and open capital pension funds to make loans to insured parties and participants. The Insurance Companies and Open Capital Pension Funds are also allowed to securitize their financial assistance portfolios and to perform securitizations activities with third parties to capitalize the company selling the loans credits/portfolio of loans.

More changes coming Looking ahead, SUSEP and other industry groups are deeply involved in discussions that are

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BRAzIlIAN INSURANCE mARkET REvIEW AND COmmENT continued

AUThOR

Carlos Eduardo Sá da mattaSenior manager, Brazil Insurance GroupTel: �� 3674 333�

[email protected]

likely to lead to changes in solvency and capital requirements for insurers. The current practice of using solvency indices based on historical claims and premium transactions is no longer considered sufficient in light of today’s risks. Rules allow minimum capital requirements to be both fixed and variable, but the amounts are based solely on the type of insurance (line of business) and operating locations, and there is no measurement or analysis that takes into account the various risks involved such as underwriting risks, financial risks and credit risks. Several technical committees have been established with SUSEP coordination to develop risk-based methodologies that will lead to gradual changes in the requirements governing minimum capital and solvency for insurers.

Sweeping changes are also in store for the health insurance industry in Brazil. The industry’s regulatory body, the National health Agency (ANS), is studying how to permit premium increases for health plans initiated before �999, which are producing significant losses for insurers. In addition, health insurers face the challenge of complying with most of the new rules issued by SUSEP and other regulators.

While Brazilian insurers clearly face many challenges in revising a host of operating, accounting and financial management procedures, it is clear that the industry has begun a strong movement to converge with international practice.

AUtHORS: STEPhEN W. kOSLOW AND LANCE YOUTS

Successfully managing today’s regulatory examinations: Getting it right is more important than ever

Insurance digest • PricewaterhouseCoopers 2�

SUCCESSFUllY mANAGING tODAY’S REGUlAtORY ExAmINAtIONS: GETTING IT RIGhT IS mORE ImPORTANT ThAN EvER

market conduct examinations of insurance companies in the U.S. have been performed for many years and few would argue with the fundamental logic behind the examinations as a means for regulators to assess whether companies are meeting their statutory obligations. While these examinations have always resulted in a disruption to the target company’s day-to-day operations, there has not been a major concern over the examination process. however, recent trends are causing companies to assess how they approach the management of the regulatory examination and to enhance the rigor around their response process. Specifically, the attention of the company management on market conduct examinations has been raised by the introduction of multi-state examinations, an increased focus on controls-based assessments and the use of remediation plans and deferred prosecution agreements by states as a means of enforcement.

In light of these changes in the market conduct landscape, many insurance companies believe the timing is right to evaluate the methodologies utilized to manage regulatory examinations and significantly increase the formality and rigor around the company’s management of these examinations.

This article describes many of the exam management enhancements currently being implemented by insurance companies.

Enhancing your company’s response to market conduct examinations

Regulatory examinations have three distinct, yet integrated phases:

Phase I: Preparing for the examination;

Phase II: Responding to requests for interviews and documents; and

Phase III: Responding to criticisms and draft reports.

Classical symphonies often begin with an overture providing the audience a glimpse into the tone, mood and complexity of the musical work. This is followed by distinct, yet integrated movements that explore unique aspects to the composition. Companies may want to approach a regulatory examination as if it were a symphony. Similar to the overture, there will be a brief, but critical, period of time when the company has an opportunity to establish the mood and tone of the examination. This introductory period of time will be followed by logical progression of exam-driven requirements for

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the company. Such requirements include the period of time focused on providing the company with requested information, responding to preliminary criticisms and inquiries, and preparing the formal response to the draft report. Just as it is the role of the conductor to maintain order and harmony among the numerous musicians, for complex examinations, it is the role of the Chief Compliance Officer or an attorney serving in this capacity, to orchestrate the response strategy, response participants, and regulator interaction that will yield a successful examination.

Phase I: Preparing for the examination

Get your house in order and set the appropriate tone

When your company first becomes aware that it is the subject of a comprehensive market conduct examination, senior management should undertake efforts to understand the scope and rational of the upcoming examination. In addition to the typical insurance functions that are evaluated during a market conduct exam, the insurer may find itself fighting a battle of ‘perception’ regarding its business practices or its willingness to cooperate with the regulators in connection

Classical symphonies often begin with an overture providing the audience a glimpse into the tone, mood and complexity of the musical work.

Recent trends are causing insurance companies to assess how they approach the management of regulatory examinations. many of these companies believe the timing is right to evaluate the methodologies utilized to manage regulatory examinations and significantly increase the formality and rigor around the company’s management of these examinations.


SUCCESSFUllY mANAGING tODAY’S REGUlAtORY ExAmINAtIONS: GETTING IT RIGhT IS mORE ImPORTANT ThAN EvER continued

with the examination. The Chief Compliance Officer plays a critical role as the coordinator of the following pre-examination tasks:

Establish guiding principles for the examination: The Company’s strategy should be defined and communicated throughout the company prior to the examination. A pledge by the Company to cooperate and respond as completely and accurately as possible will become ‘guiding principles’ of the company’s exam response strategy that will serve the company well when inevitable difficulties arise, as it is not uncommon for there to be challenges around data and document production, personality conflicts with examiners, examination timelines, as well as differences in interpretation of the National Association of Insurance Commissioners (NAIC) market conduct standards and testing methodologies;

Identify the right internal resources to manage the exam: Determine the internal

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resources the Company will need to manage and respond to the exam. This may include individuals from compliance, the field, operations and IT. All individuals who may be required to help out should be notified, and provided the Company’s goals and strategy for the exam;

Assess the current state of your control environment: If the scope of the examination is known, you may want to work with your legal counsel to conduct an assessment of the target areas. This type of assessment can start with a review of recent compliance monitoring or internal audit reports, and be tailored to the specific areas and time period of the examination. This will help Company management determine the most effective strategy for managing the exam; and

Manage the planning conversations with the regulator and the examiner: The initial conversations and

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meetings with the regulators and examiners will present the best opportunity for senior management to convey the company’s commitment to cooperation and accuracy, and will help establish the tone of the examination. In addition, these conversations are useful to articulate the expectations of both sides regarding the timing and format of data/document production, logistics for fieldwork, and expectations regarding ‘inquiry’, ‘criticism’, and ‘draft report’ response formats and protocols.

Phase II: Responding to requests for interviews and documents

Timeliness and accuracy need to be the driving principles

Now that your examination strategy has been defined and your response team assembled, the next movement begins with requests for interviews with company personnel. This presents an opportunity for the company to re-communicate its commitment

to candor and honesty in communications with regulators. In addition, the timing is right to remind company personnel of the concrete steps taken by the company to enhance compliance controls across the company – this helps to get interviewees thinking about compliance controls.

Your company will also receive an administrative subpoena requesting documents and electronic data. It is imperative that the company designate a response team with the skill sets necessary to fully respond to such requests. The response team should consider the following steps upon receipt of a data/document request from the regulator:

Understand information requests: The company should assure it has an accurate understanding of information requests, and identify-resolve-document any issues or questions regarding the scope of requests (both internally and with the lead examiner);

Prepare complete documentation: Complete and accurate documentation should be provided to the regulators with the goal of making the document review easy for the examination team;

Maintain organized files/documentation: Files should be organized with the goal of making the document review easy for the examination team;

Identify, address and memorialize document/data production issues: Any issues with the production should be

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SUCCESSFUllY mANAGING tODAY’S REGUlAtORY ExAmINAtIONS: GETTING IT RIGhT IS mORE ImPORTANT ThAN EvER continued

identified (such as missing documentation) and explained to Examiner, as well as the company’s plans to address the production issues; and

Perform quality control procedures: Quality control procedures should be performed by someone other than those assembling and providing the data/information to assure the file documentation is complete, organized and supports the actions taken by the company.

While these steps may sound elementary, the proper execution is contingent upon the effectiveness of communication and cooperation among divisions and business units. In order to deliver on commitments of timeliness and accuracy, the company should utilize a formal quality control process. The core components of a quality control process include:

‘Ownership’ by the person(s) responsible for obtaining the requested documents/data, including specific steps to demonstrate that the documents/data are complete and accurate;

A review by someone other than the preparer to evaluate the accuracy, sufficiency, and completeness of the production;

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Revisions as needed to the information gathering process; and

Another review to evaluate the accuracy and completeness of the revised production prior to providing the information to the Examiner.

Phase III: Responding to criticisms and draft reports

Three words: Support, Support, Support

At the conclusion of exam fieldwork, the company often receives preliminary findings in the form of criticisms (crits) that indicate specific findings (such as a sample claim scored as Fail under an NAIC standard). These crits afford the company an opportunity to influence the content of the report by providing additional information to the examiner. When responding to crits, the company should treat these communications as formal and expect that the company’s response may be referenced in the draft and final reports.

At the conclusion of the crit process, the company usually receives a draft copy of the examination report for the purpose of providing comments and corrections to the regulator. The company’s response is usually required within a specified

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time frame (e.g., 30 days), meaning the response team has limited time to identify factual corrections and/or legal issues to include in the company’s response, including:

Recalculate pass/fail/na counts in the examination workpapers;

Evaluate the adequacy of the findings in the examination workpapers;

Reconcile the draft report to supporting examination workpapers and statutory citations, and identify factual corrections and/or legal issues to be addressed in the company’s response; and

Prepare factual corrections and/or reasonable legal positions that directly address the findings in the examination workpapers and the draft report.

The preparation of a narrative response can be one of the more challenging aspects of a market conduct exam. Just as a symphony is the marriage of many different instruments, tempos and notes, a narrative response requires the coordinated contributions from legal, compliance and operational units. The use of a strategic communication approach will facilitate the regulator’s evaluation of the company’s response. Consider providing an executive

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summary, a direct response to the draft report and examination workpaper findings, and the supporting documentation as response exhibits.

The Examiner and regulator will evaluate the company’s response and usually schedule a meeting with company representatives to discuss outstanding issues such as (a) the content of the ‘final’ report, (b) the ‘significant’ issues from the regulator’s perspective that may require company action, and (c) the possibility of a corrective action plan and/or a follow-up market conduct exam.

lessons learned

Today’s regulatory examinations are serious business with material consequences for substandard conduct, such as fines and penalties, sales/marketing restrictions, poor public perception, and negative impacts to the volume of new business issued. however, insurers have tools available to manage regulatory examinations in a way that facilitates cooperation with the regulators and accuracy of examination results. Proper strategy, project planning and communication working in harmony throughout all phases of a regulatory exam will help the company ‘get it right’ and deliver value to all affected stakeholders.

AUThORS

Stephen W. KoslowDirector, Financial Services Compliance Advisory PracticeTel: � 3�2 298 [email protected]

lance YoutsDirector, Dispute Analysis & InvestigationsTel: � 2�4 7�4 4�[email protected]

For further information about PricewaterhouseCoopers Americas Insurance Group, please call your usual contact at PricewaterhouseCoopers or one of the following:

Further information

Insurance digest

John S. Scheid* Global Insurance Assurance and Advisory Services Leader and Chairman, Americas Insurance Group Tel: � 646 772 306� E-mail: [email protected]

Global Insurance Group

James J. Scanlan* US Insurance Leader, Philadelphia, PA Tel: � 267 330 2��0 E-mail: [email protected]

John Farina US Insurance Tax Leader, Boston, mA Tel: � 6�7 �30 739� E-mail: [email protected]

michael markman Financial Advisory Services, Chicago, IL Tel: � 3�2 298 28�8 E-mail: [email protected]

Paul l. Horgan* US Insurance Advisory Leader, New York, NY Tel: � 646 47� 8880 E-mail: [email protected]

David Y. Rogers US Life Actuarial & Insurance management Solutions, Boston, mA Tel: � 6�7 �30 73�� E-mail: [email protected]

John F. Gibson US P&C Actuarial & Insurance management Solutions, Atlanta, GA Tel: � 678 4�9 7�2� E-mail: [email protected]

US Insurance Group

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Bermuda

Bill Bawden Canadian Insurance Leader Tel: � 4�6 947 8970 E-mail: [email protected]

Canada

leslie Hemery South Americas Insurance Leader Tel: �6 2 940 006� E-mail: [email protected]

South America

* member of the Global Insurance Leadership Team

The member firms of the PricewaterhouseCoopers network (www.pwc.com) provide industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. more than �40,000 people in �49 countries share their thinking, experience and solutions to develop fresh perspectives and practical advice.

‘PricewaterhouseCoopers’ refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

The Americas Insurance Digest is produced by experts in their particular field at PricewaterhouseCoopers LLP, to address important issues affecting the insurance industry. It is provided for general guidance only, and does not constitute the provision of legal advice, accounting services, investment advice, written tax advice under Circular 230 or professional advice of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult with a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided ‘as is’ with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties or performance, merchantability, and fitness for a particular purpose.

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