# Components

SUMMARY:
The overall objectives of the project planning phase are:
1. Gain an understanding of the customer, its organization and management structure, and control environment.
2. Prepare a functional and effective work program to utilize during fieldwork.
All members of the project team must understand the customer, the project scope, and their role in the project.
For full details see www.coastal.com/audit/planning

OVERVIEW:
All audit should be planned in accordance with Coastal Standards. The completion of all steps in this section is required.


# ComponentSteps

TITLE:
Definition of Inherent Risk Impact and Likelihood

TEXTFIELD1:
Probability of Occurrence – the probability that an event will occur that would prevent a process or activity from attaining its objectives.

3	High	High certainty that an undesired event could occur.
2	Medium	Undesired event could occur.
1	Low	Undesired event would rarely occur

Magnitude of Impact – The potential impact if a process or activity fails.

3	High	One instance, or many multiple instances of the risk occurring that could result in a material undesired event of a dollar magnitude in excess of 5% of surplus and result in serious financial solvency concerns and a material rating agency downgrade

2	Medium	One instance, or many multiple instances, of the risk occurring that could result in an undesired event of a dollar magnitude in excess of 2.5% of surplus resulting in a serious impact on reputation and shareholder value with adverse publicity and problems will require Board and senior management attention

1	Low	One instance, or many multiple instances of the risk occurring could never result in an undesired event of a dollar magnitude reaching 2.5% of surplus resulting in no potential impact on shareholder value or impact on reputation.


Overall Inherent Risk Assessment – is arrived at by taking into account the probability of occurrence, the magnitude of impact and the examiner’s professional judgment.

	The Overall Inherent Risk Assessment ratings are: 

“High”, 
“Medium”, or 
“Low”.



Control Rating -  The ability of the Control to mitigate the risk.

1	Strong	Control mitigates the risk (Preventive, Specific)
.5	Medium	Control may mitigate the risk (Detective, Monitoring)
0	Weak	Control does not mitigate the risk (No Control)

TEXTFIELD2:
This is a definition - please do not complete or respond to this item.


TEXTFIELD1:
The potential that a borrower or counter-party will fail to perform on an obligation.


TEXTFIELD1:
Business Credit Risk is the risk that a counter-party will fail to perform on an obligation or default on amounts due.  These credit risk obligations include accounts receivable from agents, group contract holders, affiliates and reinsurance companies.  This risk category includes pre-settlement risk.

Please assess the adequacy of your Company's risk management activities with respect to business credit risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to business credit risk and finally, using menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response. 

Your answer should address topics such as the following:

Does management periodically evaluate and review the financial condition and controls of outside agents or others (MGA’s) who handle the premiums of insurers?
 
Are follow-ups conducted for past due accounts with agents, commercial policyholders, affiliates, reinsurance companies and other parties and are these accounts independently monitored for potential write-offs?


TEXTFIELD1:
Reinsurance Credit Risk is the risk that a ceding (primary) insurer will not be able to collect amounts due or recoverable from a reinsurance company as indemnification for benefits and expenses already paid by the ceding insurer, as well as those that are outstanding, because the reinsurance company lacks the financial capability to pay.  

Please assess the adequacy of your Company's risk management activities with respect to reinsurance credit risk. This assessment should be described for the insurer group, legal entity, and along business lines. Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to reinsurance credit risk.. and finally, using menus to the right, rate the effectiveness of the control described above. Yes, no or N/A answers are not considered to be a complete response: 

Your answer should address topics such as the following:

Do reinsurance agreements require formal review and approval, prior to execution, by officers?  If so, please describe the process.

Is regulatory approval (where applicable) of reinsurance agreements documented?
Does the documentation include projections of the expected economic results and the accounting for the transactions?

Are all amendments and changes to reinsurance agreements supported by written documentation?

Discuss any significant contracts with management companies, agents or on reinsurance layers. 

Discuss significant specific arrangements with agents, MGAs or others.
Is the financial stability of assuming companies reviewed to ascertain whether such companies are solvent and have the ability meet liabilities assumed under the reinsurance agreement? If so, please describe the process.

Are the results of reinsurance agreements monitored to permit timely recapture of ceded premium or cancellation of assumed reinsurance?  Who reviews and approves the decision to recapture or cancel the treaties?


TEXTFIELD1:
Invested Asset Credit Risk is the risk of non-performance of contractual payment obligations on invested assets. This risk category includes the risk of a rating downgrade associated with an invested asset on the balance sheet.
  
Please assess the adequacy of your Company's risk management activities with respect to invested asset credit risk as well as determine inherent risk assessments for each of these activities. This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to invested asset credit risk and finnaly, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.

Your answer should address topics such as the following:

Has the board of directors adopted a written investment plan with specific guidelines as to the quality, maturity, and the diversification of investments?

Does the board of directors or authorized committee approve all investment transactions?

Does management periodically evaluate the financial condition and capabilities of bank custodians, broker/dealers, servicing agents, property managers and others with whom the insurer has established business relationships?

Has the board of directors or appointed committee developed a written plan for securities lending transactions?

Does management review investment valuation methods for compliance with company policies and regulatory requirements?

Does management review investments for compliance with the authorized investment plans, including quality, maturity, dollar limits and regulatory requirements?

Are written agreements maintained with those parties borrowing securities from the insurer that specify the duties and responsibilities of each party which include, but are not limited to, acceptable types of collateral, standards for collateral custody and control, collateral valuation and initial margin, accrued interest, market value, margin calls, methods for transmitting coupon or dividend payments received if the security is on loan on the payment date, conditions which will trigger the termination of the loan (including events of default), and acceptable methods of delivery for loaned securities and collateral
Do procedures exist to ensure that the delivery of loaned securities is not made unless adequate collateral has been received or will be received simultaneously with the securities delivery?

Do procedures exist to establish limit approvals and monitor credit risk of parties borrowing securities from the insurer?

Has the board of directors or appointed committee developed a written plan for repurchase transactions?

Are written agreements maintained with parties who enter into repurchase agreements with the insurer that specify the duties and responsibilities of each party which include, but are not limited to, acceptable types of collateral, standards for collateral custody and control, collateral valuation and initial margin, accrued interest, market tracking, margin calls, methods for transmitting/receiving coupon or dividend payments, conditions which will trigger the termination of the repurchase agreement (including events of default), and acceptable methods of delivery for securities and collateral?

If the Company has an Investment Pool, are there written guidelines for the investment pool that specify the duties and responsibilities of each party involved?

Does the investment pool have a designated manager?

Has management established written guidelines for entering into derivative transactions?
 Do the guidelines address investment objectives and risk constraints, permissible transactions and the relationship of those transactions to its operations?

Has the company instituted underwriting policies and guidelines (e.g., title searches, appraisals) for accepting liens against property and that they have periodically evaluated?

Are new mortgage loans reviewed and monitored for compliance with authorized investment objectives, dollar limits, and regulatory requirements?


TEXTFIELD1:
Political Credit Risk is the risk to a credit investment associated with changes in government policies.


Please assess the adequacy of your Company's risk management activities with respect to political credit risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to political credit risk and finally, using the using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Sovereign Credit Risk is the risk that obligations of foreign entities or countries may be adversely affected by interference or actions by foreign governments. 

Please assess the adequacy of your Company's risk management activities with respect to sovereign credit risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to sovereign credit risk and finnaly, using using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Credit Concentration Risk is the risk of increased exposure to major asset defaults (of a single security issuer or class of security issuers); economic conditions (if business is concentrated in a certain industry sector or geographic area); or adverse regulatory or court decisions (if concentrated in a single jurisdiction) affecting credit. 

Please assess the adequacy of your Company's risk management activities with respect to credit concentration risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inhererent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to credit concentration risk and finnaly, using the using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response. Your answer should address topics such as the following:

Has the Company adopted a written plan with specific guidelines as to the collectibility and diversification of receivables or other extensions of credit?

Does management review aggregate exposures of invested and non-invested assets  for compliance with concentration guidelines, dollar limits and regulatory requirements?


TEXTFIELD1:
Market Risk is the risk associated with adverse movements in market rates or prices, such as interest rates, foreign exchange rates, or equity prices.


TEXTFIELD1:
Basis Risk is the risk that there may be differences (either positive or negative) between the performance of a financial instrument used to hedge and the item being hedged.  Basis risk consists of both the risks of under-recovery and over-recovery when the performance of the hedging instrument is compared to the hedged item.  Basis risk is often associated with hedging transactions where the performance of the hedging instrument does not exactly match the performance of the risk being hedged, because of differences between the risk being hedged and risk underlying the performance of the derivative instrument; it arises from an imperfect correlation in the adjustment of the rates earned and paid on different instruments, including those tied to different interest rate indices.  

Please assess the adequacy of your Company's risk management activities with respect to basis risk as well as determine inherent risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to basis  risk and finally, using  using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response: 

Your answer should address topics such as the following:

Has management established written guidelines for entering into derivative transactions?

Do the guidelines address investment objectives and risk constraints, permissible transactions, and the relationship of those transactions to its operations?

Do procedures exist to ensure that purchase transactions do not exceed limitations promulgated by the insurer’s state of domicile?

Does the company have a monitoring system for determining whether a derivative instrument used for hedging has been effective?

Does the board of directors or investment committee determine whether there are adequate professional personnel and adequate systems to engage in derivative transactions?


TEXTFIELD1:
Reinvestment Risk is the risk that rates will fall, causing cash flows from an investment's principal plus income (dividends or interest), upon reinvestment, to earn substantially less than the original underlying asset. 
Please assess the adequacy of your Company's risk management activities with respect to reinvestment risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to reinvestment  risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Currency Risk is the risk that changes in exchange rates may result in a decrease in value of the foreign securities or trading instruments.  Principal and income payments on the foreign securities at settlement are based upon that particular currency and must be converted into U.S. dollars.  When the foreign currency is weak and the U.S. dollar is strong, fewer dollars will be received upon conversion.  Currency risk may be related to the risk factors present in off-balance sheet risk.  This type of risk would occur if a company had an off-balance sheet guaranty denominated in foreign currency. 

Please assess the adequacy of your Company's risk management activities with respect to currency risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent  risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to currency risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Asset Concentration Risk is the risk of increased exposure to major asset defaults (of a single security issuer or class of security issuers) and economic conditions (if business is concentrated in certain industry sector or geographic area), or adverse regulatory or court decisions (if concentrated in a single jurisdiction).  Asset Concentration Risk includes the risk that the company cannot sell large blocks of assets at current market prices. 

Please assess the adequacy of your Company's risk management activities with respect to asset concentration risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to asset concentration risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Asset/Liability Marching Risk (Interest Rate Risk) is the risk resulting from the impact of fluctuating interest and inflation rates on the values of assets and liabilities.  This risk category includes prepayment risk.  Asset/liability matching risk includes components of duration risk, convexity risk, and basis risk.  

Duration is the measure of interest rate sensitivity taking into account all changes in cash flows of the asset or liability.  Mathematically, it is the first derivative of the price/yield function.   "MacCauley Duration", expressed in years, is the time-valued weighted-average maturity of all cash flows (whether principal or interest).  "Modified Duration" is expressed as the percentage change in a bond's price for a given (parallel) change in interest rates.  Convexity is the second derivative of the price/yield function.  Given that yields are compounded, the price/yield function is non-linear.  Therefore, duration is not a constant: the second 1% change in interest rates will not move a bond's price by exactly the same amount as will the first 1%. 

Convexity measures the additional change in value.  Bonds with options i.e. - puts, calls or pre-payables have exaggerated convexity because the timing and amount of cash flows is sensitive to changes in interest rates.  For very large changes in interest rates, or for smaller changes when options are embedded in the asset and/or liability, offsetting positions with equal duration but different convexity will not change in value proportionately.  For large and fast changes, they may “gap” too quickly to be economically re-balanced.  Basis risk is the risk associated with various types of interest-bearing investments that each price off of their own indices or yield curves, reflecting the unique dynamics of each.  These types of rate-based instruments include short-term investments such as commercial paper (CP), and certificates of deposit (CDs) and long-term investments such as bonds, domestic and foreign governments, tax-exempt issues, agencies and corporate issues.  Basis risk arises when one type of instrument is hedged with another type of the same maturity; for example, issuing CP and buying LIBOR floaters, or buying corporate issues and hedging by shorting Treasuries.  In asset/liability management, basis risk refers to differences between futures contracts and their corresponding cash securities.  If the effect of interest rate fluctuations on assets is different than on liabilities, whether by duration and convexity and/or by basis, the values of assets and liabilities will change by different amounts, and, if material, may ultimately expose an insurer to insolvency.  The risk manifests itself as policyholders surrender their policies for cash (disintermediation) when asset values are depressed compared to the value of the obligations supported by the assets.  Interest rate risk and asset/liability matching risk are usually managed in tandem.

Please assess the adequacy of your Company's risk management activities with respect to interest rate risk as well as determine inherent risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  

Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to interest rate risk and finally, using the the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Asset Market Value Risk is the risk that realizable value of a given asset may be substantially less than its carrying value upon conversion to cash because of current market conditions (caused by use of book versus market values, or use of market values where fluctuations in values put the liability values into the money, as may occur with variable annuities with guaranteed living benefits or guaranteed minimum death benefits).  These market value risks are also associated with fluctuating equity values and prices.  This risk category also includes the risk of lower asset values due to rating downgrades. 

Please assess the adequacy of your Company's risk management activities with respect to asset market value risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent  risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to asset market value risk and finally, using the the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Political Risk is the risk that the value of invested assets will decrease significantly as a result of changes in government policies. 

Please assess the adequacy of your Company's risk management activities with respect to political risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to political risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.  :


TEXTFIELD1:
Sovereign Risk is the risk that the value of investments in foreign countries will be adversely affected by interference or actions by foreign governments; includes the failure of foreign governments or courts to recognize rights or enforce obligations arising under the laws of the U.S. or its various states. 

Please assess the adequacy of your Company's risk management activities with respect to sovereign risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to sovereign risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
For Property Casualty Companies -  Risk that unexpectedly large movements in underlying interest rates, currencies, equities, credit quality, or changes in implied volatility, will cause losses due to unexpected extremes in values for options (explicit or embedded) in assets and/or liabilities.  These movements may occur too quickly to rebalance portfolios, redesign products, or alter strategies.  Examples of causes of potential volatility include credit risk in collateralized debt obligations (CDOs); interest rate risk; and bond calls and/or prepayments.  Options are used primarily on the asset side for the property/casualty industry. 

For Life Insurance Companies - Risk that unexpectedly large movements in underlying interest rates, currencies, equities, credit quality, or changes in implied volatility, will cause losses due to unexpected extremes in values for options (explicit or embedded) in assets and/or liabilities.  These movements may occur too quickly to rebalance portfolios, redesign products, or alter strategies.  Examples of causes of potential volatility include credit risk in collateralized debt obligations (CDOs); interest rate risk; bond calls and/or prepayments; and market susceptible equity-linked variable annuities with guaranteed living benefits


Please assess the adequacy of your Company's risk management activities with respect to option risk as well as determine residual risk assessments for each of these activities. This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to option risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Liquidity Risk is the potential that an institution will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain adequate funding (funding-liquidity risk) or because it cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (market-liquidity risk).


TEXTFIELD1:
Liquidity Risk is the risk that unexpected timing or amounts of cash needed will require liquidation of assets in a market that will result in loss of realized value or an inability to sell certain classes of assets such that an insurer will be unable to meet its obligations and contractual guarantees.  Market or company conditions may preclude access to, or cause disruption of, outside sources of liquidity (e.g., through borrowing, affiliate advances, reinsurance or securitization) upon which an insurance company typically relies in the normal course of business.  Additionally, the company may not be able to sell large blocks of assets at current market prices.  Liquidity risk also arises from uncertain/unusual cash demands from catastrophic events. 

Please assess the adequacy of your Company's risk management activities with respect to liquidity risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to liquidity risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response. 

Your answer should address topics such as the following:

Has the board of directors adopted a written investment plan with specific guidelines as to the quality, maturity, and diversification of investments?


TEXTFIELD1:
Asset/Liability Matching Risk is the risk that actual cash flows and liquidated asset values are not sufficient to meet the cash flow obligations to beneficiaries, policyholders, claimants or creditors when market conditions are adverse.  These risks are particularly significant for interest-sensitive products such as guaranteed investment contracts (GICs), annuities with guaranteed benefits, and other products having a guarantee backed by interest-sensitive assets.  Asset/liability risk can be viewed as a combination of liquidity and market value risks.  Losses in asset values and/or increases in claims/benefits created by changes in interest rate levels result in a lack of synchronization of asset/liability cash flows.  Interest rate risk and asset/liability matching risk are usually managed in tandem.  

Please assess the adequacy of your Company's risk management activities with respect to asset/liability matching risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to asset/liability matching risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response: 

Your answer should address topics such as the following:

Has the board of directors adopted a written investment plan with specific guidelines as to the quality, maturity, and diversification of investments?

Does the Company perform modeling of the asset/liability match under various market scenarios?  How often is this modeling performed?


TEXTFIELD1:
Affiliate Risk is the risk that the value of investments in affiliates may decline.  Affiliates may default on fulfillment or repayment of financial or operating obligations.  Needs of a parent holding company may create additional risks by draining financial or operating resources from affiliates.  Risk of declining reputation or quality of management of affiliates may affect reputation or management of an insurer, resulting in liquidity strain.  This risk category includes the risk impact of stacking organizations (vertically organized corporate structures common among insurance organizations) where an action or obligation of a subsidiary may adversely affect its parent.  Similar risks exist for other investments such as limited partnership investments. 

Please assess the adequacy of your Company's risk management activities with respect to affiliate asset risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before after mitigation by controls, policies and procedures to affiliate asset risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Capital Markets/Funding Risk is the risk of inadequate funding to meet regulatory, legal or market (e.g., rating/credit standards, transactional or business) requirements or economic (contingencies, business volatility, or strategic) needs from outside market sources. 

Please assess the adequacy of your Company's risk management activities with respect to business credit risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines. Please assess the adequacy of your Company's risk management activities with respect to capital markets/funding risk as well as determine residual risk assessments for each of the these activities.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to capital markets/funding risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Operational Risk is the potential that inadequate information systems, operational problems, breaches in internal controls, fraud or unforeseen catastrophes will result in unexpected losses.


TEXTFIELD1:
Human Capital Risk is the risk that a company will not be able to attract or retain sufficient and qualified personnel and management.  Risk that management and employee incentives are not aligned with long-term economic objectives of an insurer, policyholder interests or public policy (e.g., executive stock options or bonuses).  This risk category would also include employees and contractual representatives of an insurer (such as appointed insurance producers authorized to sell, solicit or negotiate insurance) not operating in conformance with the carrier's established policies and procedures, or improper supervision by the insurer of producers acting on the company's behalf. 

Please assess the adequacy of your Company's risk management activities with respect to human capital risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to human capital risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Operational Risk is the risk that substantial unexpected losses will result from ineffective/inadequate internal control policies (including those of the internal audit function), inadequate practices/procedures, inadequate information or management reporting systems, or reliance on third parties or vendors.  Such risk could also result from failure to design appropriate financial reporting and accounting systems. 

Please assess the adequacy of your Company's risk management activities with respect to operational risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to operational risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Financial Statement Presentation Risk is the risk that inadequate controls and management oversight may result in financial statements that do not fairly present an insurer's financial condition, results of operations, or cash flows in accordance with standard or accepted reporting or accounting convention.  This risk could result in litigation and unfavorable perceptions impacting business and investor relationships, share price or product sales. 

Please assess the adequacy of your Company's risk management activities with respect to financial statement presentation risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and 
"probability" before mitigation by controls, policies and procedures to financial statement presentation risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.

Your answer should address topics such as the following:

Is there an Audit Committee? If so, describe its make-up.

Describe the duties assigned and performed by the audit committee.


TEXTFIELD1:
Fraud Risk is the risk that internal fraudulent action will damage an insurer, resulting in loss of value due to embezzlement, expropriation, misrepresentation, or other adverse action contrary to laws or ethical standards. 

Please assess the adequacy of your Company's risk management activities with respect to fraud risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please assess the adequacy of your Company's risk management activities with respect to human capital risk as well as determine residual risk assessments for each of the these activities.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to fraud risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Integration Risk is the risk that information systems and/or operational problems will result from combining or merging companies, purchasing blocks of business, or excessive growth. 

Please assess the adequacy of your Company's risk management activities with respect to integration risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent  risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to integration risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.

Your answer should address topics such as the following:

Is due diligence performed for entering into new business areas and/or purchases/mergers?

What is the extent to which gap analysis is performed as part of an integration to ensure that controls in place before merger/integration are still in place after merger/integration.

Are information and other systems evaluated for compatibility?

What are the controls over undue influences with respect to merger or entry into new business area (i.e. if a member of management REALLY wants to go through with the project, even though the due diligence, testing, etc. is concluding it would be a poor decision)?


TEXTFIELD1:
Start-Up Risk is the risk that during an insurance company's initial start-up phase, or its expansion into a new product line, the company may lack appropriate management discipline, internal controls, credible data on the nature of products/business, or sufficient volume for adequate risk diversification.  Such risk may result in inappropriate pricing, underwriting, claims practices, or reserving; it could also result in inappropriate capital allocation or inadequate operating resources. 

Please assess the adequacy of your Company's risk management activities with respect to start-up risk as well as determine residual risk assessments for each of the activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to start-up risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Ineffective Modeling/Stress Testing Risk is the risk of substantial losses related to interest- or other market-sensitive business due to inappropriate choices of interest rate and/or other assumptions, or the scenarios selected and the number of scenarios used, in testing for purposes such as strategic planning, profitability, or capital allocation. 

Please assess the adequacy of your Company's risk management activities with respect to ineffective modeling/stress testing risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before after mitigation by controls, policies and procedures to ineffective modeling/stress testing risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Business Continuation/Interruption Risk is the risk of substantial disruption of insurer operations and facilities due to natural and man-made catastrophes; inadequacy or disruption of logistical, distribution or operational resources; or adverse legal or regulatory developments.  This risk could include damage to an insurer's office building or its contents; loss of records; loss of utilities; or inability to access its building or outside vendors. 

Please assess the adequacy of your Company's risk management activities with respect to business continuation/interruption risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before after mitigation by controls, policies and procedures to business continuation/interruption risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Legal Risk is the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect the operations or condition of an insurer.


TEXTFIELD1:
Legal Risk is the risk that arises from an insurer's non-conformance with laws, rules, regulations, prescribed practices or ethical standards in any jurisdiction in which it operates.  Risk that product features or contract language become unenforceable due to changes in law or adverse court decisions.  New doctrines, opinions, or court decisions may also create additional risks.  Examples of court decisions which could cause insurer losses include adverse tax rulings or rulings on class action lawsuits regarding insurance policy definitional or coverage issues. 

Please assess the adequacy of your Company's risk management activities with respect to legal risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to legal risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Regulatory Risk is the risk that adverse regulatory agency rulings or actions, and/or policy decisions made by non-governmental entities (e.g., the National Association of Insurance Commissioners (NAIC), International Association of Insurance Supervisors (IAIS), and U.S. and international accounting standard-setting bodies), may alter financial market conditions or competitive abilities.  This risk includes the loss of business opportunities due to uneven regulatory oversight.  Examples of regulatory rulings include decisions regarding insurance premium rate increases (inadequate, delayed, etc.) and decisions such as prescribed accounting practices, reserving requirements, and interpretations of product coverage or exclusions, any of which may adversely impact an individual insurance company and/or the industry.  Examples of policies set by non-governmental entities include newly developed guidance or enhancements to existing regulatory standards such as NAIC model laws, IAIS core insurance principles and international accounting standards. 

Please assess the adequacy of your Company's risk management activities with respect to regulatory risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to regulatory risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Legal Political Risk is the risk associated with changes in government policies (legislative actions, tax changes, etc.) that may favor other competing segments of the financial services industry, or unfavorably impact consumer demand for insurance products and/or investment or product values. 

Please assess the adequacy of your Company's risk management activities with respect to legal political risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to legal political risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Distribution Channels Risk is the risk that inappropriate sales practices or techniques or misrepresentations are being utilized in the marketing or sales of products to customers.  This risk category would include sales practice abuses and violations of consumer protection rules and regulations by insurance producers authorized to sell, solicit or negotiate insurance acting on behalf of an insurer. 

Please assess the adequacy of your Company's risk management activities with respect to distribution channels risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to distribution channels risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Legal Fraud Risk is the risk that external fraudulent action will damage a company or may result in litigation. 

Please assess the adequacy of your Company's risk management activities with respect to legal fraud risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to legal fraud risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Legal Financial Statement Presentation Risk is the risk of litigation if company financial statements do not fairly present an insurer's financial condition, results of operations, or cash flows in accordance with standard or accepted reporting or accounting convention.  

Please assess the adequacy of your Company's risk management activities with respect to financial statement presentation risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to financial statement presentation risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Legal Sovereign Risk is the risk that investments in foreign countries will be adversely affected by interference or actions of foreign governments, which may impede the enforceability of an insurer's contract.  This risk category includes the risk of failure of foreign governments or courts to recognize rights or enforce obligations arising under the laws of the U.S. or its various states. 

Please assess the adequacy of your Company's risk management activities with respect to Legal sovereign risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to legal sovereign  risk and finally, the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
The potential that negative publicity on an insurer's business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.


TEXTFIELD1:
Reputation Risk is the risk that an insurer will incur losses related to market rumor or adverse perception of company activity.   This risk category includes the effects of a rating downgrade by an independent nationally recognized statistical rating organization (NRSRO).  This category also includes ramifications of erroneous or inaccurately prepared financial statements. 

Please assess the adequacy of your Company's risk management activities with respect to reputation risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to reputation risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Quality/Service Delivery Risk is the risk that a company will incur losses from unfavorable business practices and management decisions related to its or an affiliate's reputation. 

Please assess the adequacy of your Company's risk management activities with respect to quality/service delivery risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to quality/service delivery risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Reputational Fraud Risk is the risk that internal or external fraudulent action will damage a company. 

Please assess the adequacy of your Company's risk management activities with respect to reputational fraud risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to reputational fraud risk and finally, using the menus to the right rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Pricing and underwriting practices are inadequate to provide for risks assumed.


TEXTFIELD1:
Pricing Risk is the risk that:

1. policy premium will not be sufficient to cover product guarantees and actual expenses.  Premium risk arises from uncertainty as to future actual results such as:

Investment results (insurer earns less than a policy guarantees);

Mortality results (either insured dying too soon for life insurance policy or living too long for annuitants); 

actual experience by mortality class [preferred, standard, or substandard] being substantially different than assumed in setting the policy premium; 

morbidity results (unusually high number of claims and/or extended length of claim payment periods due to fewer deaths or recoveries on short- and long-term disability income and long term care business); or 

persistency results (policies remaining in force are substantially higher than anticipated for lapse-supported benefits, or substantially less for all other products, thereby substantially increasing actual expenses and claims).

2. Risk that profitability targets will not be met and, as a result, surplus will decline to an unacceptable level. 

Please assess the adequacy of your Company's risk management activities with respect to pricing risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to pricing risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Underwriting Risk is the risk that the underwriting criteria related to the selection and approval of risks to be insured are not consistent with those reflected in determining the premiums charged the insured (e.g., incorrectly classifying a risk in the wrong mortality class [preferred, standard, or substandard] when the policy is issued, which in turn may result in the policyholder being charged an inappropriate premium.  Underwriting risk may also occur at the time of a policy renewal when a group’s credible experience may not be adequately factored into the premium. 

Please assess the adequacy of your Company's risk management activities with respect to underwriting risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Policy Lapse Risk is the risk that actual policies lapsing causes substantial adverse variances to total benefit payments on which premium and other product guarantee provisions are based, which will result in capital losses.  Risks could arise from substantially higher or lower lapse rates than provided for by the premium.  Losses could arise due to secondary effects of higher lapse rates, as when there is a higher incidence of mortality and/or morbidity for a insured pool due to healthier members letting their policies lapse, thus leaving a higher percentage of less healthy members in the remaining pool, or when higher expenses for a product result from fewer premium-paying policies from which to recover expenses.   Losses could also arise due to the effects of substantially lower lapse rates, as with certain annuity products with lapse-supported values or benefits.  For example, a situation could arise when a greater number of living benefit payments than provided for by the premium collected will be paid for either fixed or variable annuities.  Additionally, an insurer may be unable to release reserves because of insufficient lapses on lapse-supported health products.  This risk arises because these reserve releases are expected to be a major source of reserve increases for persisting policies in health lines like long-term care.  

Please assess the adequacy of your Company's risk management activities with respect to policy lapse risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Mortality/Longevity/Morbidity Risk is the risk that the actual future benefit payments (at death, on maturity of an annuity, or as the result of disability, sickness or serious illness) will be substantially greater than those assumed and/or contractually guaranteed for the premiums paid, thereby reducing the company’s capital.  For example, on life insurance products, risk arises from the insured persons dying sooner than assumed in determining the policy premium.  On annuity products, risk arises when the annuitant lives substantially longer than assumed in determining the policy premium.  On disability income or long-term care insurance products, the risk arises from substantially increased frequency of disability income or long-term care claims and/or substantially increased claim periods (i.e., fewer recoveries of disabled insured persons, or deaths) than provided for by the contractual morbidity tables and/or assumed in determining the policy premium.  

On health insurance policies, risk arises from substantially higher costs of procedures or greater use of services or procedures than assumed in determining the policy premium. 

Additional secondary risks to capital may arise for policies that permit increasing premiums after the policy is issued (as with some term insurance and most health insurance products); decreasing non guaranteed credits (as with universal life policies); or lowering dividends on participating policies (as with whole-life insurance), if, as a result, mortality and/or morbidity experience worsens due to higher incidence of policy lapses for the healthier insured persons (adverse selection), who lapse as a result of the changes made. 

Please assess the adequacy of your Company's risk management activities with respect to mortality/longevity/morbidity risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Frequency/Severity of Claims Risk is the risk that numerous and/or large claims occur within a short time period, resulting in substantial unexpected losses. 

Please assess the adequacy of your Company's risk management activities with respect to frequency/severity of claims risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Net Retention Risk is the risk that the company does not have sufficient capital to support the business it retains net of reinsurance.  Risk that high retention of insurance risks exposes the company to the risks of higher than expected losses due to catastrophic, large or concentrated claims experience.  Alternatively, there could be a risk that too low a retention of insurance risk (and the consequent loss of associated premium income) exposes the company’s capital adequacy. 

Please assess the adequacy of your Company's risk management activities with respect to net retention risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to net retention risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
New Company/Start-Up Risk is the risk that during the initial start-up phase, an insurer may lack the appropriate or adequate management discipline, internal controls, credible data on nature of business, or sufficient volume of adequate diversification of risk, which may result in significant losses due to inappropriate pricing, underwriting, claims practices, reserving or inappropriate provision of capital, liquidity or operating resources.  Risk that the company may lack the appropriate or necessary resources to market, underwrite, service and manage a start-up operation. 

Please assess the adequacy of your Company's risk management activities with respect to new company/start up  risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to new company/start up risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Reserving/Rapid Growth Risk is the risk that a Company's inexperience with a new product or market, or greater than forecasted growth of a core product, may result in a substantial volume of new business that places a strain on capital and operating resources.  Such a situation could lead to erosion of financial strength, including rating adjustments, and reduced flexibility.  Substantial growth may also create the risk of the inability to find appropriate investments to fund future benefits. 

Please assess the adequacy of your Company's risk management activities with respect to rapid growth rate risk as well as determine residual risk assessments for each of  these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to rapid growth risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Business Concentration Risk is the risk of increased product exposure to natural and man-made catastrophes resulting from a lack of appropriate limits (e.g., lack of geographic risk diversification) on aggregate investment and/or insurance risks. 

Please assess the adequacy of your Company's risk management activities with respect to business concentration risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to business concentration risk and finally, using the menus to the right rate the effectiveness of the controls described above.. Yes, no or N/A answers are not considered to be a complete response.Business Concentration Risk is the risk of increased product exposure to natural and man-made catastrophes resulting from a lack of appropriate limits (e.g., lack of geographic risk diversification) on aggregate investment and/or insurance risks. 

Please assess the adequacy of your Company's risk management activities with respect to business concentration risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to business concentration risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Reinsurance Risk is the risk of loss associated with an insurer’s reinsurance program.  Such risks include: 

Risk of loss due to an insurer’s inability to properly plan, price, procure, or maintain an effective reinsurance program.  Examples of such risk include: 

(1) a direct writing insurer fails to obtain a ceding commission from a reinsurer that is sufficient to cover the direct writer’s acquisition costs (i.e., the costs of obtaining the business); and 

(2) a direct writer fails to obtain sufficient excess of loss reinsurance. 

The failure of a ceding insurer to accurately determine amounts due from reinsurance companies or estimate the amount of credit (i.e., ceded reserves) that can be applied against an insurer’s direct reserves (Estimation Risk).
  
Risk of loss related to disagreements with reinsurance companies over terms/coverage or amounts due or recoverable (Dispute Risk).  

Please assess the adequacy of your Company's risk management activities with respect to reinsurance risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent  exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to reinsurance risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Small Block of Business Risk is the risk of significant loss due to the lack of sufficient or credible experience. 

Please assess the adequacy of your Company's risk management activities with respect to small block of business risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to small block of business risk and finally, using the menus to the right rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Pricing/Underwriting Distribution Channels Risk is the risk that there is a mismatch between an insurance product and distribution channels and/or market targeted, resulting in substantial losses from such things as adverse selection or concentration of risk. 

Please assess the adequacy of your Company's risk management activities with respect to distribution channels risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to distribution channels risk and finally, usingthe menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Competitive Risk is the risk that competition in the market will negatively impact an insurer’s ability to gain/maintain market share, which could result in reduced earnings, reduced capital, and loss of future business opportunities. Examples include the risk of underpricing a product or increased marketing/distribution expenses associated with the introduction of a new product. 

Please assess the adequacy of your Company's risk management activities with respect to competitive risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk  exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to distribution channels risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Reserving Risk  is the risk that actual losses or other contractual payments reflected in reported reserves or other liabilities will be greater than estimated.


TEXTFIELD1:
Reserving Risk is the risk that an insurer’s established active (in force) policy reserves are inadequate.  This risk seldom arises on traditional life insurance and annuity products because of minimum formula requirements in the state’s Standard Valuation Law, and cash flow testing requirements for life insurers. Additionally, the risks of underestimating reserves on complex, blended investment-like products are mitigated by asset adequacy analysis required by state insurance regulators annually.  In this process, an insurance company’s valuation actuary is required to perform testing (at the 85% confidence interval level) of the adequacy of the insurer’s currently owned assets to mature its liabilities using variations of anticipated cash flows, in accordance with different interest rate economic scenarios.  This may lead to the establishment of additional reserves if appropriate cash flow analysis and realistic assumptions are used due to the relative predictability of the life insurance risks (as compared to those insured in the property/casualty industry).  Examples of reserving adequacy risk include instances where reserves  assume a higher investment rate than an insurer is able to earn; reserves  substantially underestimate improvements in annuitant mortality; and reserves for equity-linked guaranteed benefits  become unsupportable.  

The risk that health reserves will prove inadequate is higher than for life and annuity products.  For most health coverage, the ability to project future experience based on past experience and prior assumptions is more difficult because of the greater volatility and uncertainty relating to health claim costs.  Active policy reserves and claim liabilities and reserves depend upon assumptions for future continuing payments (e.g., for disability income and long-term care coverage, the benefit period may extend for several years).  Additionally, the risk that established reserves plus future premiums are significantly less than the cost of all obligations for some portion of the future would require additional reserves that will significantly decrease available capital. 

Please assess the adequacy of your Company's risk management activities with respect to reserving risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk  exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to pricing risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Policy Lapse Risk is the risk that actual policy lapsation causes substantial adverse variances to total benefit payments on which premium and other product guarantee provisions are based, which will result in capital losses.  Risks could arise from substantially higher or lower lapse rates than provided for by the premium.  Losses could arise due to secondary effects of higher lapse rates, as when there is a higher incidence of mortality and/or morbidity for a pool of insureds due to healthier insureds letting their policies lapse, thus leaving a higher percentage of less healthy insureds in the remaining pool, or when higher expenses for a product result from fewer premium-paying policies from which to recover expenses.   Losses could also arise due to the effects of substantially lower lapse rates , as with certain annuity products with lapse-supported values or benefits.  For example, a situation could arise when a greater number of living benefit payments than provided for by the premium collected  will be paid for either fixed or variable annuities.  Additionally, an insurer may be unable to release reserves because of insufficient lapses on lapse-supported health products.  This risk arises because these reserve releases are expected to be a major source of reserve increases for persisting policies in health lines like long-term care.  

Please assess the adequacy of your Company's risk management activities with respect to policy lapse risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Unemployment risk is the risk of substantial losses due to unemployment significantly increasing the frequency and severity of disability income or long-term care claim payments beyond that assumed and provided for in determining the policy premium. 

Please assess the adequacy of your Company's risk management activities with respect to unemployment risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability"  before  mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Mortality/Longevity/Morbidity Risk is the risk that the actual future benefit payments (at death, on annuitization, or as the result of disability, sickness or serious illness) will be substantially greater than those assumed and/or contractually guaranteed for the premiums paid, thereby reducing the company’s capital.  For example, on life insurance products, risk arises from the insureds dying sooner than assumed in determining the policy premium.  On annuity products, risk arises when the annuitant lives substantially longer than assumed in determining the policy premium.  On disability income or long-term care insurance products, the risk arises from substantially increased frequency of disability income or long-term care claims and/or substantially increased claim periods (i.e., fewer recoveries of disabled insureds, or deaths) than provided for by the contractual morbidity tables and/or assumed in determining the policy premium.  

On health insurance policies, risk arises from substantially higher costs of procedures or greater use of services or procedures than assumed in determining the policy premium. 

Additional secondary risks to capital may arise for policies that permit increasing premiums after the policy is issued (as with some term insurance and most health insurance products); decreasing non guaranteed credits (as with universal life policies); or lowering dividends on participating policies (as with whole-life insurance), if, as a result, mortality and/or morbidity experience worsens due to higher incidence of policy lapses for the healthier insureds (adverse selection), who lapse as a result of the changes made. 

Please assess the adequacy of your Company's risk management activities with respect to mortality/longevity/morbidity risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Frequency/Severity of Claims Risk is the risk that numerous and/or large claims occur within a short time period, resulting in substantial unexpected losses. 

Please assess the adequacy of your Company's risk management activities with respect to frequency/severity of claims risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Inflation Risk is the risk that overall price increases  will further increase the cost of services related to health claims, substantially increasing losses that are not provided for in the policy premium. 

Please assess the adequacy of your Company's risk management activities with respect to inflation risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to underwriting risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Net Retention Risk is the risk that the company does not have sufficient capital to support the business it retains net of reinsurance.  Risk that high retention of insurance risks exposes the company to the risks of higher than expected losses due to catastrophic, large or concentrated claims experience.  Alternatively, there could be a risk that too low a retention of insurance risk (and the consequent loss of associated premium income) exposes the company’s capital adequacy. 

Please assess the adequacy of your Company's risk management activities with respect to net retention risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to net retention risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Reserving/New Company/Start-Up Risk is the risk that during the initial start-up phase, an insurer may lack the appropriate or adequate management discipline, internal controls, credible data on nature of business, or sufficient volume of adequate diversification of risk, which may result in significant losses due to inappropriate pricing, underwriting, claims practices, reserving or inappropriate provision of capital, liquidity or operating resources.  Risk that the company may lack the appropriate or necessary resources to market, underwrite, service and manage a start-up operation. 

Please assess the adequacy of your Company's risk management activities with respect to new company/start up  risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to new company/start up risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Reserving/Rapid Growth Risk is the risk that a Company's inexperience with a new product or market, or greater than forecasted growth of a core product, may result in a substantial volume of new business that places a strain on capital and operating resources.  Such a situation could lead to erosion of financial strength, including rating adjustments, and reduced flexibility.  Substantial growth may also create the risk of the inability to find appropriate investments to fund future benefits. 

Please assess the adequacy of your Company's risk management activities with respect to rapid growth rate risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to rapid growth risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Business Concentration Risk is the risk of increased product exposure to natural and man-made catastrophes resulting from a lack of appropriate limits (e.g., lack of geographic risk diversification) on aggregate investment and/or insurance risks. 

Please assess the adequacy of your Company's risk management activities with respect to business concentration risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to business concentration risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Small Block of Business Risk is the risk of significant loss due to the lack of sufficient or credible experience. 

Please assess the adequacy of your Company's risk management activities with respect to small block of business risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to small block of business risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.


TEXTFIELD1:
Strategic Risk that arises from an insurance company's inability to make and/or implement appropriate business plans, to make sound decisions, to properly allocate resources or to successfully adapt to changes in its business environment. 

Please assess the adequacy of your Company's risk management activities regarding strategic risk as well as determine residual risk assessments for each of these activities.  This assessment should be described for the insurer group, legal entity, and along business lines.  Please discuss your Company's inherent risk exposure in terms of " impact" and "probability" before mitigation by controls, policies and procedures to business strategic Risk and finally, using the menus to the right, rate the effectiveness of the controls described above. Yes, no or N/A answers are not considered to be a complete response.

Your answer should address topics such as the following:

Has the company developed a long-term strategic plan?
Does management obtain and use information to stay abreast of changes in the competitive, technological and regulatory environments?
Does management develop an annual budget and financial plan based on corporate goals and objectives?
How are strategic plans and budgets communicated throughout the organization?
Please describe the extent to which divisional plans and budgets are commensurate with corporate strategic plans and budgets, and with the Company's risk profile.
Please describe the extent to which Senior management and the Board's compensation are aligned with the Companies strategies, objectives and risk profile.
Please describe the extent to which commissions are aligned with the Company's strategies, objectives, and risk profile.
Please describe the extent to which the budgeting and reporting process provides management with the appropriate information to make strategic decisions.


# Switchboard Items

ItemText:
Optional - View risk summary - only after completing all sections!


# TmAuditFlags

DESCRIPT:
Highlight items in cabinet newer than revision date


