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Greetings!
The June edition of Insurance Perspectives provides insight into COSO's new internal control Framework and the FIO's first annual report as well as describes some key differences between bankruptcy and insurance insolvencies. We also preview an upcoming speaking engagement featuring Invotex insurance professionals. As always, we welcome your feedback and invite you to share Insurance Perspectives with your colleagues and business acquaintances. If you do not currently receive our newsletter via e-mail, please subscribe at the left. Les Schott and Jim Stangroom Managing Directors, Insurance Services |
COSO Finalizes New Internal Control Framework
After more than a year of deliberation since it first issued an exposure draft, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published an updated Internal Control - Integrated Framework and related guidance material in May 2013. The COSO Framework is the predominant benchmark for SEC registrants to report on internal controls to comply with SOX and by many larger insurers that are required to comply with the insurance statutory requirements of the Annual Financial Reporting Model Regulation (MAR). Many insurance entities of all sizes also refer to COSO in connection with their management of financial reporting risk and as a component of their overall Enterprise Risk Management. This is the first update to the COSO Framework since it was originally issued in 1992.
This update of the COSO Framework does not represent a major overhaul by any means. The five components of the COSO internal control Framework remain unchanged: control environment, risk assessment, control activities, information/communication and monitoring. The updated Framework codifies 17 principles representing the fundamental concepts across these five components. These principles were embedded in the original Framework; however, the update sorts them into an organized set of principles. Read on.
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The Federal Insurance Office Releases its First Annual Report but not "The" Report
The U.S. Department of the Treasury's Federal Insurance Office (FIO), on June 12, 2013, released its first Annual Report on the Insurance Industry to the President and Congress. According to Treasury's press release, this report addresses the financial performance and condition of the principal sectors within the industry and provides a review of recent insurer insolvencies, risk management and portfolio investment activities. In addition, the report reviews key legal and regulatory developments affecting the insurance industry in the United States and abroad and discusses current and emerging trends that may have a significant impact on the industry and the stability of the U.S. financial system. This report is not the long awaited report on the modernization of insurance industry regulation, which was also mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The modernization report was due in January 2012 and has not yet been released. In a recent Congressional hearing, FIO Director Michael McRaith estimated that it would be available "soon." Read on.
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Bankruptcy Meets Insurance
The year 2012 saw the filing of highly publicized bankruptcy cases in the real estate finance area (Residential Capital, LLC), the power producer area (Edison Mission Energy) and the airline industry (American Airlines). All of these companies filed for bankruptcy protection under Title 11 of the U.S. Code, also known as the Bankruptcy Code (the "Code"). Leaving out the highly publicized tribulations of AIG, which did not result in a bankruptcy or insurance receivership, over the years there have been several insurance receiverships: PMI Mortgage, Shenandoah Life Insurance, Lumbermens Mutual Casualty Company and American Manufacturers Mutual Insurance Company, to name a few. However, the Code expressly excludes insurance companies from qualifying as a debtor under 11 U.S.C. §§ 109(b). Similar provisions also exclude banks and other deposit-taking financial institutions from bankruptcy protection. The following discussion focuses on several key distinctions between a bankruptcy proceeding and a state insurance insolvency proceeding. Read on.
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