1 Nature, Conduct, and Regulation of the Business 01-98 General Nature of the Business 01-03 Kinds of Insurance 04-08 Legal Forms of Organization 09 Methods of Producing Business 10-17 Major Transaction Cycles 18-36 Underwriting of Risks 18-27 Pooling, Captives, and Syndicates 28-30 Processing and Payment of Claims 31-32 Investments 33-36 Accounting Practices 37-98 State Insurance Regulation 37-45 National Association of Insurance Commissioners 46-47 Federal Regulation--Securities and Exchange Commission 48-53 Federal Regulation--The Dodd-Frank Wall Street Reform and Consumer Protection Act 54-64 Federal Regulation--Terrorism 65-69 Industry Associations 70 Statutory Accounting Practices 71-89 Generally Accepted Accounting Principles 90-97 Comparison of SAP and GAAP 98 2 Audit Considerations 01-186 Introduction 01 Scope of the Audit Engagement 02-14 General Considerations 02-04 PCAOB Integrated Audit of Financial Statements and Internal Control Over Financial Reporting 05-09 Additional PCAOB Audit Standards 10-14 Planning and Other Auditing Considerations 15-73 Audit Planning 16-17 Audit Risk 18-22 Risk Assessment Procedures 23-28 Understanding the Entity, Its Environment, and Its Internal Control 29-47 Common Industry Ratios and Performance Metrics 48-60 Identifying and Assessing the Risks of Material Misstatement 61-64 Performing Audit Procedures in Response to Assessed Risks 65-71 Use of Assertions in Obtaining Audit Evidence 72-73 Other Risk Assessment Activities and Considerations 74-78 Planning Materiality 74-76 Performance Materiality and Tolerable Misstatement 77-78 Consideration of Fraud in a Financial Statement Audit 79-80 Insurance Industry--Fraud Risk Factors 81-103 The Importance of Exercising Professional Skepticism 83 Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud 84-87 Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud 88-89 Identifying Risks That May Result in a Material Misstatement Due to Fraud 90-94 Assessing the Identified Risks After Taking an Evaluation of the Entity''s Programs and Controls That Address the Risks Into Account 95-96 Responding to the Results of the Assessment 97 Evaluating Audit Evidence 98 Responding to Misstatements That May Be the Result of Fraud 99-100 Communicating About Possible Fraud to Management, Those Charged With Governance, and Others 101-102 Documentation and Guidance 103 Use of Information Technology 104-107 Going Concern Considerations 108-116 Evaluating Misstatements 117-120 Audit Documentation 121-129 Consideration of the Work of Internal Auditors 128-129 Communication of Matters Related to Internal Control 130-137 Identification of Deficiencies in Internal Control 131-132 Communication of Deficiencies in Internal Control 133-137 Communication of Other Matters With Those Charged With Governance 138-142 Matters to Be Communicated 140-142 Communications by Successor Auditors 143 Auditor Independence 144-145 Auditing Fair Value Measurements and Disclosures 146-148 Considerations for Auditors to Comply With the NAIC Model Audit Rule 149-170 Awareness 150-151 Change in Auditor 152 Auditor''s Letter of Qualifications 153 Qualifications of the Auditor 154 Indemnification 155 Partner Rotation 156 Prohibited Services 157-159 Consideration of Internal Controls in a Financial Statement Audit 160 Notification of Adverse Financial Condition 161-162 Report on Internal Controls 163-165 Working Papers 166 Communications to Audit Committees 167 Management''s Report on Internal Controls Over Financial Reporting 168-170 Auditor''s Consideration of State Regulatory Examinations 171-175 Auditor''s Consideration of Permitted Statutory Accounting Practices 176-180 SEC Requirements for Management''s Report on Internal Control Over Financial Reporting 181-186 3 Premiums 01-132 Background 01-29 Types of Premiums Adjustments 04 Summary of Premium Transaction Flow 05-26 Involuntary Markets 27-29 Accounting for Premiums and Acquisition Cost 30-110 Premium Revenue and Premium Adjustments 30-49 Premium Receivable 50-55 Acquisition Costs 56-83 Premium Deficiencies 84-97 Medicare Part D 98-102 Accounting for Contracts That Do Not Transfer Insurance Risk 103-104 Disclosure Considerations 105-110 Auditing Premiums and Acquisition Costs 111-132 Audit Planning 111 Consideration of Fraud in a Financial Statement Audit 112 Audit Risk Factors--Premiums and DAC 113-116 Management Estimates 117-119 Risk of Material Misstatement--Inherent Risk Factors 120-121 Internal Control 122-124 Control Environment 125-126 Risk Assessment Process 127-128 Control Activities 129 Audit Procedures Responsive to the Assessed Risks of Material Misstatement 130-131 Audit Consideration Chart 132 4 The Loss Reserving and Claims Cycle 01-205 Introduction 01-02 Types of Businesses and Their Effect on the Estimation Process 03-14 Policy Duration 04 Type of Coverage 05 Kind of Insurance Underwritten: Line of Business or Type of Risk 06-14 The Transaction Cycle 15-32 Claim Acceptance and Processing 16-18 Claim Adjustment and Estimation 19-24 Claim Settlement 25-28 Reinsurance Receivable 29-30 Salvage and Subrogation 31-32 Components of Loss Reserves 33 Estimating Methods 34-53 Illustrative Projection Data 44-53 LAE Reserves 54-62 DCC Reserve Calculation Approaches 56-59 AO Reserve Calculation Approaches 60-62 Changes in the Environment 63-66 Critical Accounting Policies and Estimates Disclosure 67-68 Use of Specialists by Management in Determining Loss Reserves 69-71 Guaranty Fund and Other Assessments 72 Accounting Principles 73-93 Discounting Loss Reserves 75-82 Structured Settlements 83-85 Reinsurance Receivables 86 SAP 87-93 Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises 94-113 Applicability to Statutory Financial Statements 94 Relationship to Other Pronouncements 95 Liability for Unpaid Claims and Claim Adjustment Expenses 96-113 Auditing Loss Reserves 114-205 Planning Considerations--Overview 114-119 Consideration of Fraud in a Financial Statement Audit 120-122 Risk of Material Misstatement--Inherent Risk Factors 123 Internal Control 124-126 Control Environment 127 The Entity''s Risk Assessment Process 128-129 Information Systems 130 Control Activities 131-132 Identifying and Assessing the Risks of Material Misstatement 133 Audit Procedures Responsive to the Assessed Risks of Material Misstatement 134-142 Use of Loss Reserve Specialists 143 Loss Reserve Specialists Engaged by the Auditor 144-146 Use of Management Specialists by Auditors in Evaluating Loss Reserves 147-149 Auditor''s Response to Management''s Use or Non-Use of a Loss Reserve Specialist 150 Evaluating the Reasonableness of the Estimates 151 Analytical Procedures 152-157 Testing the Data, Assumptions, and Selection of the Estimate 158-162 Auditing the Underlying Data Used in the Loss Reserving Process 163-168 Develop a Point Estimate or Range to Evaluate Management''s Estimate 169-170 Loss Reserve Ranges 171-177 Factors That Could Affect a Range of Reasonably Possible Outcomes 178-184 Evaluating the Financial Effect of a Reserve Range 185-193 Auditor Uncertainty About the Reasonableness of Management''s Estimate and Reporting Implications 194-195 Evaluating the Reasonableness of Loss Adjustment Expense Reserves 196-197 Ceded Reinsurance Recoverable and Receivable 198-203 Understanding the Impacts of Foreign Exchange 204 Audit Consideration Chart 205 5 Investments and Fair.