Today’s accounting Super Session will cover some of the majorregulatory, political and legislative issues that have globalimplications for insurance accounting professionals. The supersession features panelists who are experts on a wide range ofregulatory topics, including U.S. healthcare reform, Europe’sSolvency II, and the NAIC’s Solvency ModernizationInitiative.

Uncertainty Abounds

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Top of mind for many U.S. insurers is healthcare reform. NancyL. Litwinski, director, national healthcare for Deloitte &Touche LLP, will explore how changes are impacting companies,particularly in light of the uncertainty around the final shape ofreform.

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“There are tremendous challenges to healthcare reform from abusiness strategy perspective because there is so much up in theair, particularly with the number of states that have challengedwhether the reform legislation is even constitutional,” Litwinskisays.

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Topics of discussion on the healthcare front include thedevelopment of insurance exchanges, high-risk pools, and medicalloss ratio profitably restrictions. Reform legislation will beexamined not just for its impact on health insurance companies, butalso for its potential impact on life, P&C, and other insurersthat incur medical claims costs.

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Regulatory Change

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But healthcare reform isn’t the only area of uncertaintyinsurers have to deal with. The number and pace of regulatorychanges on an international scale presents ongoing challenges forcompanies across all sectors of insurance.

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“Accounting standards boards are very transparent, but there issimply a lot of information to monitor and understand.Additionally, timetables for initiatives such as standardsconvergence keep changing,” says session moderator and panelist JimStangroom, managing director, Invotex Group.

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And change does not exist in a vacuum. “Companies are dealingwith all manner of regulatory reform while they grapple withessential business issues of growth and profitability.Additionally, many carriers are still reeling from the combinedimpact of the global financial crisis and soft pricing in theirparticular market,” Stangroom says.

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In this environment, education is essential to identify thecombination of processes, people, and technology needed to stay incompliance with standards. “For time- and resource-strappedcarriers, the biggest issue is perhaps around education,” saysStangroom. “Their accounting staff resources have to find time tostay current with the latest developments, but those experts areneeded to handle the challenges of day-to-day accounting operationsas well.”

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On the Agenda

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The Super Session will also look at the impact of Solvency II,the updated set of regulatory requirements for insurers thatoperate in the EU, which is scheduled to take effect in January2013.

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“Initially, Solvency II will impact companies that have a globalreach,” Stangroom says. “However, Solvency II is finding its way tothe U.S. through our own solvency modernization, and it willultimately have some impact on U.S.-domiciled companies aswell.”

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Solvency II is a risk-based system of measurement designed toreduce the risk of loss to policyholders and provide warnings toregulators so that early intervention can be taken, helping topromote confidence in the EU insurance sector. The Solvency IIframework has three main “pillars,” including quantitativerequirements, requirements for governance and risk management ofinsurers, and disclosure and transparency requirements.

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NAIC Modernization

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David A. Vacca, CPA, assistant director of the insuranceanalysis and information services department in the NAIC’sregulatory services division, will provide insight into the NAICSolvency Modernization Initiative (SMI). Adopted in July 2008, theSMI is examining international regulatory developments and theirpotential use in U.S.` regulation.

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“At this point, the SMI is studying reinsurance, groupsupervision and group capital assessment, governance, riskmanagement, accounting and valuation, principles based reserving,and risk-based capital,” Vacca says.

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His presentation will also cover the Own Risk Self Assessment(ORSA), which falls under the group supervision and risk managementarea.

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“ORSA is one of the hot topics today,” Vacca says. “Many U.S.regulators believe that some form of ORSA will have regulatoryvalue as companies’ risk management process is integrated intoassessment.”

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ORSA represents the procedures and processes used to monitor,assess, identify, manage, and report the short- and long-term risksan insurer faces. As a result of that assessment, companiesdetermine the funds necessary to guarantee that complete solvencyrequirements are met at all times.

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“Well-executed risk management improves a company’s chances ofcontinuing to operate in a strong and healthy manner,” Vaccaexplains.

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In addition, the NAIC is proposing an ORSA model to assistregulators with risk-focused examinations, aid the ability to helpthe industry withstand financial stress, and to help superviseinternationally-active groups. Furthermore, an ORSA would help theU.S. market comply with commitments made in the November 2008 G20Financial Summit to undertake a Financial Sector Assessment Program(FSAP) report.

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Going Forward

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Other areas of discussion are likely to include the impact ofchanges to IFRS and U.S. GAAP accounting for insurance contractsand financial instruments, including views on convergence or U.S.adoption of IFRS and the potential impacts on U.S. statutoryaccounting. The session may also examine the IAIS ComFrame TaskForce, a framework for the group-wide supervision ofInternationally Active Insurance Groups.

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Dodd-Frank financial regulatory reform is also on the agenda,with discussion likely to touch on the Federal Insurance Office andthe Financial Stability Oversight Council (FSOC). The FSOC’sdesignation of certain insurance entities as “systemicallyimportant” is something insurers should be aware of, along withchanges to derivatives rules.

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There is a wide range in abilities among insurers to deal withan increasingly complex regulatory landscape.

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“As you might expect, mid-sized and smaller companies may not beas well prepared, particularly for some of the more complex andhighly quantitative aspects of various regulations,” Stangroomsays. “However, there are a lot of companies—particularly those inlarger markets with an international reach—that are not onlywell-prepared, but very active in the reform process itself.”

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Staying abreast of the current state of reform is essential tobeing prepared, and the Accounting Super Session can help giveattendees vital information they need.

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“Insurers should closely monitor developments through tradeassociations, working groups, and conferences,” Stangroom says“They need to put that knowledge to use to shape their ownstrategy.” K

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