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A Consulting Actuary's Opinion: Protecting Your Financial Reporting


September 14, 2018 / by Ben Cohen, FSA, MAAA

Is your company appropriately managing and evaluating all risks related to your actuarial valuation of liabilities and reporting of financial statements? Here are three areas we look at with our clients.

Financial Accuracy

The impact of reserves being too high or too low can either have you leaving money on the table or leave you in a position where your earnings are overstated. Not only does this impact your reported values, but this could also impact your company budget, reporting to management for strategic decisions, and projection of adequacy of reserves.

Audit of Reserves and Financial Reporting

For any company with significant business on the books, there are always items that get uncovered during audit of reserves and financial reporting. In most cases, they are minor—maybe a manual coding error, overlooking a new benefit feature, or simply refining the data available. Even with staff peer review and external audit, it might make sense to do an internal audit with fresh eyes from an outside source. Audit samples are frequently recycled and peer review can get stuck in a rut of checking the same things in different years.

Reinsurance Performance

What has your reinsurance done for you lately? In other words, do you know how reinsurance is performing? Are you making or losing money on reinsurance? Are you confident that you are taking the correct reinsurance credits? Has your company implemented a treaty and let the process run for years afterward without review? These are all questions to consider if you utilize reinsurance.

What We Have Seen in Our Practice

In one case, we worked with a client that was using an incorrect reserve assumption, which led to a significant overstatement of reserves. And, in another case, we found a misapplication of the valuation standards that resulted in a significant understatement of reserves. Both of these situations required restatement of financials and significant time and effort to correct. The better scenario is one where we have been able to evaluate and make corrections before any material financial impact.

If you have a full actuarial staff, then you have invested a significant portion of your budget in maintaining a strong financial team. Nevertheless, you might consider an outside source to supplement areas that need enhancements or simply to get fresh eyes for periodic review. Even a small periodic project or partial outsourcing could save expenses, provide a more robust process, and avoid any significant issues with financial statements.


Topics: Valuation and Financial Reporting

Ben Cohen, FSA, MAAA

Written by Ben Cohen, FSA, MAAA

Ben serves as Wakely Actuarial’s President & Consulting Actuary. He joined Wakely in 2002 and enjoys the variety in the day-to-day of his current role.