SOFE CDS 2018 Indian Wells, CA Risk Focused Analysis and Coordination – the relationship between the new Analysis process, Examinations and best practices in working together Presenter: B11 - Risk-Focused Analysis and Coordination—The Relationship Between the New RF Analysis Process, RF Examinations and Best Practices in Working Together Pat Gosselin, CFE • New Hampshire Department of Insurance John Humphries, AES, CFE • Risk & Regulatory Consulting, LLC Phil Schmoyer, AES, CFE • Baker Tilly Virchow Krause, LLP The true deliverable of any examination is a thorough understanding of the company. To be effective, every EIC must work closely with the assigned analyst and take the Department’s understanding to another level. Pat Gosselin, Chief Financial Analyst New Hampshire Insurance Department John Humphries, Partner Risk & Regulatory Consulting Phil Schmoyer, Senior Manager Baker Tilly

Do you have a headshot we can use? Today’s Presenters Do you have a headshot we can use? Pat Gosselin, Chief Financial Analyst John Humphries, Partner Phil Schmoyer, Senior Manager

Today’s Agenda Understand the Risk-Focused Analysis process and how examiners can best support the analyst 1 Explore key opportunities to coordinate for both the examiners and analysts 2 3 Develop understanding of key documentation and uses cases for coordination

“Circle of Life” Arrows represent the flow of information  Communication

Risk Focused Surveillance Financial Condition Examiners Handbook - Preamble “The primary purpose of a risk-focused examination is to review and evaluate an insurer’s business processes and controls(including the quality and reliability of corporate governance) to assist in assessing and monitoring its current financial condition and prospective solvency.” So the real goal is to assist ( assist who? The Analyst!) The goal of exams is to truly understand the company. Not just the balance sheet but insurers business processes and control, corporate governance) to assist (the analyst). Our real “deliverable” is a deeper understanding of the Company. When we “deliver” this information- to the Analsyst – that is Communication!

Accreditation Requirements - Analysis Communication of Relevant Information to/from Financial Analysis Staff (Review Team Guidelines Part B1, paragraph b.) “The analyst's communication and collaboration with the financial examination staff before, during and at the conclusion of a financial examination” “The analyst utilization and incorporation of pertinent information from the financial examination in conducting ongoing analysis.” RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Accreditation Requirements - Analysis New Process Oriented RTG in 2018 Results of ongoing analysis procedures should be shared with the financial examiners to assist in examination planning through a coordination meeting. An email exchange alone, between analyst and examiner is not considered sufficient communication in planning an examination. During the planning process of each examination, the analyst should meet (in person or via conference call) with the examiner to communicate areas of concern and specific issues to address during the examination. To assist in communication, the analyst should provide a current copy of the Insurer Profile Summary (IPS) as well as other supporting analyst work papers and other documentation already on file at the department to communicate current or prospective concerns or observations and suggested procedures. RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Accreditation Requirements - Analysis Prior Process Oriented RTG The financial analyst should participate in a collaborative follow- up meeting or conference call at the end of the examination to discuss the following: Examination results and/or findings Insurer’s prioritization level Ongoing supervisory plan and completed Summary Review Memorandum (SRM) Re-assessment of branded risks as contained in the IPS RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Accreditation Requirements - Examiners Communication of Relevant Information to/from Examination Staff (Review Team Guidelines Part B2, paragraph b.) Results Oriented Effectively communicate and coordinate Specific requirement for communication and collaboration before, during and after the examination. Utilize and incorporate pertinent info from financial analysis RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Accreditation Requirements - Examiners Process Oriented During Planning – Meet with analyst by in person or by conference call to discuss areas of concern and specific issues to address Email exchange is not sufficient Obtain IPS and supporting work to communicate concerns, observations and suggested procedures RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Accreditation Requirements - Examiners Examiner should hold a collaborative follow-up meeting or conference call at the end of the examination to discuss the following: Examination results and/or findings Insurer’s prioritization level Ongoing supervisory plan and completed Summary Review Memorandum (SRM) Assessment of branded risks as contained in the IPS RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Accreditation Requirements - Examiners Examiner should recommend follow-up for the financial analyst to perform in addressing concerns/issues identified . Identified deliverable: Report recommendations Management letter comments Prospective risks SRM RTGs in the Accreditation Program Manual emphasis communication to/from the analyst. While the Analyst has a key role in maintaining and communicating information about a company, communicating with examiners and examinations is an important part.

Better Team  Better Product Common Sense Better Team  Better Product We only know a part of each Company’s story We all have our strengths and weaknesses There is an incredible strength in Teams but Teams only work if everyone works together To take advantage of this strength - you have work as a well oiled machine – communication is oil that makes it work. So, how can we can as examiners provide the right help and assistance to analyst. Now to Pat…

Background on Risk Focused Analysis Development

Background of Risk-Focused Analysis   NAIC Risk-Focused Surveillance Working Group (RFSWG) Charges: Continually review the effectiveness of risk-focused surveillance and develop enhancements to processes as necessary. Oversee and monitor the development of enhancements to the financial analysis process that further incorporate risk-focused concepts and a review of prospective solvency risks. Financial Analysis Working Group (FAHWG) Charges: Provide ongoing maintenance and enhancements to the Financial Analysis Handbook and related applications for changes to the NAIC annual/quarterly financial statement blanks, and enhancements developed to assist in risk-focused analysis and monitoring the financial coordination of insurance companies and groups, as well as coordinate and analyze input received from other state regulators. Coordinate with the Financial Examiners Handbook (E) Technical Group and the Risk-Focused Surveillance (E) Working Group, as appropriate, to develop and maintain guidance in order to provide effective solvency monitoring.

Development of Risk-Focused Analysis Through regulator observations, NAIC Accreditation and Peer review findings, risk-focused analysis was developed to address and implement the following: Consider prospective risks in the analysis process Correlation of analysis and Insurer Profile Summary (IPS) nine-branded risk categories Customize analysis by risk assessment to promote efficiencies for IPS IPS provides the summary and conclusions of analysis work Uses the same nine-branded risk categories as examinations for better coordination Promotes better communication with other state departments and examinations Re-write of the 2017 Financial Analysis Handbook on a Risk-Focused Approach

Areas of Coordination between Analysts and Examiners

Coordination between Examiners and Analyst should feel like a hand off Planning Fieldwork Wrap-up / Reporting Continued Analysis Analyst Examiners

Opportunities to Coordinate Planning – Examination team should meet with analysis, reviews files (YE and Qs) – and align branded risks Improvement comes from Branded Risks being included within the new analysis process Best practice to involve the Analyst on C-Level interviews (references in the analysis files) – NH analysts summarize all C-Level interviews to maintain in files **Exam efficiency – no need to type notes twice**

Opportunities to Coordinate Wrap-up – Analyst: Sit in on the exit conference…provides a quick summary of observations and Company input / path forward Get and use the SRM, which should be IPS based… allows for easy incorporation to the new analysis process and IPS Use "workable" list of risks and incorporate into the analysis plan for the following year

Key Documents to Facilitate Coordination

Key Documents to Aide Coordination Key documents and use cases Insurer Profile Summary Report (IPSR) – Key to analyst, starting point to examiners Summary Review Memo (SRM) – Key communication tool for examiners, starting point for continued analysis for analyst Supervisory Plan – Examiner’s Handbook Exhibit U Examination Report Management Letter

Insurer Profile Summary (IPS) Summary Information and Priority Financial Snapshot Branded Risk Assessments & Trends over time Incorporation of Supervisory Plan

Summary Review Memo (SRM) Summary Review Memo mirrors format of new Risk Assessment Worksheet regarding Branded Risk Categories Other useful information for assessment of corporate governance and risk management, as well as recommendations made

Supervisory Plan Developed throughout analysis cycle Influenced by examination outcomes Integrated plan for supervision – should have collaborative development

Examination Report and Management Letter Similar content across states Provides most up-to- date information Provides 5 year comparative analysis Summary of observations & management actions needed Concludes on past observations

Questions? Panel Discussion Pat Gosselin, Chief Financial Analyst New Hampshire Insurance Department John Humphries, Partner Risk & Regulatory Consulting Phil Schmoyer, Senior Manager Baker Tilly Panel Discussion