Today’s accounting Super Session will cover some of the major regulatory, political and legislative issues that have global implications for insurance accounting professionals. The super session features panelists who are experts on a wide range of regulatory topics, including U.S. healthcare reform, Europe’s Solvency II, and the NAIC’s Solvency Modernization Initiative.

Uncertainty Abounds

Top of mind for many U.S. insurers is healthcare reform. Nancy L. 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 of reform.

“There are tremendous challenges to healthcare reform from a business strategy perspective because there is so much up in the air, particularly with the number of states that have challenged whether the reform legislation is even constitutional,” Litwinski says.

Topics of discussion on the healthcare front include the development of insurance exchanges, high-risk pools, and medical loss ratio profitably restrictions. Reform legislation will be examined not just for its impact on health insurance companies, but also for its potential impact on life, P&C, and other insurers that incur medical claims costs.

Regulatory Change

But healthcare reform isn’t the only area of uncertainty insurers have to deal with. The number and pace of regulatory changes on an international scale presents ongoing challenges for companies across all sectors of insurance.

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

And change does not exist in a vacuum. “Companies are dealing with all manner of regulatory reform while they grapple with essential business issues of growth and profitability. Additionally, many carriers are still reeling from the combined impact of the global financial crisis and soft pricing in their particular market,” Stangroom says.

In this environment, education is essential to identify the combination of processes, people, and technology needed to stay in compliance with standards. “For time- and resource-strapped carriers, the biggest issue is perhaps around education,” says Stangroom. “Their accounting staff resources have to find time to stay current with the latest developments, but those experts are needed to handle the challenges of day-to-day accounting operations as well.”

On the Agenda

The Super Session will also look at the impact of Solvency II, the updated set of regulatory requirements for insurers that operate in the EU, which is scheduled to take effect in January 2013.

“Initially, Solvency II will impact companies that have a global reach,” Stangroom says. “However, Solvency II is finding its way to the U.S. through our own solvency modernization, and it will ultimately have some impact on U.S.-domiciled companies as well.”

Solvency II is a risk-based system of measurement designed to reduce the risk of loss to policyholders and provide warnings to regulators so that early intervention can be taken, helping to promote confidence in the EU insurance sector. The Solvency II framework has three main “pillars,” including quantitative requirements, requirements for governance and risk management of insurers, and disclosure and transparency requirements.

NAIC Modernization

David A. Vacca, CPA, assistant director of the insurance analysis and information services department in the NAIC’s regulatory services division, will provide insight into the NAIC Solvency Modernization Initiative (SMI). Adopted in July 2008, the SMI is examining international regulatory developments and their potential use in U.S.` regulation.

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

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

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

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

“Well-executed risk management improves a company’s chances of continuing to operate in a strong and healthy manner,” Vacca explains.

In addition, the NAIC is proposing an ORSA model to assist regulators with risk-focused examinations, aid the ability to help the industry withstand financial stress, and to help supervise internationally-active groups. Furthermore, an ORSA would help the U.S. market comply with commitments made in the November 2008 G20 Financial Summit to undertake a Financial Sector Assessment Program (FSAP) report.

Going Forward

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

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

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

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

Staying abreast of the current state of reform is essential to being prepared, and the Accounting Super Session can help give attendees vital information they need.

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

Special Reports /

IASA 2011: Accounting Super Session Looks at Regulatory Issues

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