1 Nature, Conduct, and Regulation of the Business 01-113 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 18-41 Underwriting of Risks 18-27 Pooling, Captives, and Syndicates 28-30 Processing and Payment of Claims 31-32 Investments 33-36 Definition of Public Business Entity 37-41 Revenue Recognition 42 Accounting Practices 43-113 State Insurance Regulation 43-51 National Association of Insurance Commissioners 52-53 Federal Regulation -- Securities and Exchange Commission 54-59 Federal Regulation -- The Dodd-Frank Wall Street Reform and Consumer Protection Act 60-70 Federal Regulation -- Terrorism 71-75 Industry Associations 76 Statutory Accounting Practices 77-104 Generally Accepted Accounting Principles 105-112 Comparison of SAP and GAAP 113 2 Audit Considerations 01-188 Introduction 01 Scope of the Audit Engagement 02-15 General Considerations 02-04 Integrated Audit of Financial Statements and Internal Control Over Financial Reporting 05-10 Additional PCAOB Audit Standards 11-15 Planning and Other Auditing Considerations 16-75 Audit Planning 17-18 Audit Risk 19-23 Risk Assessment Procedures 24-29 Understanding the Entity, Its Environment, and Its Internal Control 30-49 Common Industry Ratios and Performance Metrics 50-62 Identifying and Assessing the Risks of Material Misstatement 63-66 2 Audit Considerations Performing Audit Procedures in Response to Assessed Risks 67-73 Use of Assertions in Obtaining Audit Evidence 74-75 Other Risk Assessment Activities and Considerations 76-80 Planning Materiality 76-78 Performance Materiality and Tolerable Misstatement 79-80 Consideration of Fraud in a Financial Statement Audit 81-82 Insurance Industry -- Fraud Risk Factors 83-105 The Importance of Exercising Professional Skepticism 85 Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud 86-89 Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud 90-91 Identifying Risks That May Result in a Material Misstatement Due to Fraud 92-96 Assessing the Identified Risks After Taking an Evaluation of the Entity''s Programs and Controls That Address the Risks Into Account 97-98 Responding to the Results of the Assessment 99 Evaluating Audit Evidence 100 Responding to Misstatements That May Be the Result of Fraud 101-102 Communicating About Possible Fraud to Management, Those Charged With Governance, and Others 103-104 Documentation and Guidance 105 Use of Information Technology 106-109 Going Concern Considerations 110-118 Evaluating Misstatements 119-122 Audit Documentation 123-131 Consideration of the Work of Internal Auditors 130-131 Communication of Matters Related to Internal Control 132-139 Identification of Deficiencies in Internal Control 133-134 Communication of Deficiencies in Internal Control 135-139 Communication of Other Matters With Those Charged With Governance 140-144 Matters to Be Communicated 142-144 Communications by Successor Auditors 145 Auditor Independence 146-147 Auditing Fair Value Measurements and Disclosures 148-150 Considerations for Auditors to Comply With the NAIC Model Audit Rule 151-172 Awareness 152-153 Change in Auditor 154 Auditor''s Letter of Qualifications 155 Qualifications of the Auditor 156 2 Audit Considerations Indemnification 157 Partner Rotation 158 Prohibited Services 159-161 Consideration of Internal Controls in a Financial Statement Audit 162 Notification of Adverse Financial Condition 163-164 Report on Internal Controls 165-167 Working Papers 168 Communications to Audit Committees 169 Management''s Report on Internal Controls Over Financial Reporting 170-172 Auditor''s Consideration of State Regulatory Examinations 173-177 Auditor''s Consideration of Permitted Statutory Accounting Practices 178-182 SEC Requirements for Management''s Report on Internal Control Over Financial Reporting 183-188 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 01-204 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 Recoverable 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 73-95 GAAP Accounting 73-74 Discounting Loss Reserves 75-82 Structured Settlements 83-85 Reinsurance Recoverables 86 Liability for Unpaid Claims and Claim Adjustment Expenses 87-88 Statutory Accounting 89-95 Disclosures of Certain Matters in the Financial Statements of Insurance Enterprises 96-112 Applicability to Statutory Financial Statements 96 Relationship to Other Pronouncements 97-112 Auditing Loss Reserves 113-204 Planning Considerations -- Overview 113-118 Consideration of Fraud in a Financial Statement Audit 119-121 Risk of Material Misstatement -- Inherent Risk Factors 122 Internal Control 123-125 Control Environment 126 The Entity''s Risk Assessment Process 127-128 Information Systems 129 4 The Loss Reserving and Claims Cycle Control Activities 130-131 Identifying and Assessing the Risks of Material Misstatement 132 Audit Procedures Responsive to the Assessed Risks of Material Misstatement 133-141 Use of Loss Reserve Specialists 142 Loss Reserve Specialists Engaged by the Auditor 143-145 Use of Management Specialists by Auditors in Evaluating Loss Reserves 146-148 Auditor''s Response to Management''s Use or Non-Use of a Loss Reserve Specialist 149 Evaluating the Reasonableness of the Estimates 150 Analytical Procedures 151-156 Testing the Data, Assumptions, and Selection of the Estimate 157-161 Auditing the Underlying Data Used in the Loss Reserving Process 162-167 Develop a Point Estimate or Range to Evaluate Management''s Estimate 168-169 Loss Reserve Ranges 170-176 Factors That Could Affect a Range of Reasonably Possible Outcomes 177-183 Evaluating the Financial Effect of a Reserve Range 184-192 Auditor Uncertainty About the Reasonableness of Management''s Estimate and Reporting Implications 193-194 Evaluating the Reasonableness of Loss Adjustment Expense Reserves 195-196 Ceded Reinsurance Recoverable 197-202 Understanding the Impacts of Foreign Exchange 203 Audit Consideration Chart 204 5 Investments and Fair Value Considerations 01-251 Introduction 01-08 Overview 01 Investment Evaluation 02-03 Recordkeeping and Key Performance Indicators 04-05 The Transaction Cycle 06-07 Safekeeping 08 Regulation 09-14 Statutory Limitations 10-14 FASB Accounting Standards Codification 820 and 825 15-40 Definition of Fair Value 16-22 Application to Liabilities and Instruments Classified in a Reporting Entity''s Shareholders'' Equity 23-25 The Fair Value Hierarchy 26-30 Fair Value Determination When the Volume or Level of Activity Has Significantly Decreased 31-33 5 Investments and Fair Value Considerations Disclosures 34-35 Fair Value Option 36-38 Statutory Accounting 39-40 Accounting Practices 41-224 Significant Differences Between GAAP and Statutory Accounting 42 Cash and Cash Equivalents 43-50 Debt and Equity Securities 51-99 Mortgage Loans 100-114 Troubled Debt Restru.