Insurance auditors and actuaries of North America.Public accountants and actuaries fulfill important roles in the ongoing business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets of insurers. While both the auditor and actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin markets are dominated by a handful of firms servicing the larger group-affiliated insurers, a significant number of smaller accounting and actuarial firms also fill the needs of small, independent insurers and those with less standard ownership or profit structures. This special report focuses on independent accountants who audit an insurer's annual financial statements and on actuaries who provide the annual statutory actuarial opinion regarding an insurer's policy and claim reserves. Both are required by an insurer's domiciliary domiciliary pertaining to a household. domiciliary calls professional veterinary calls made to patients at their owners' residences. Called also house calls. regulatory authority Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities in both the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and Canada. For the study, A.M. Best examined 2004 year-end statutory filings for North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. (United States and Canada) insurance companies to identify accounting and actuarial individuals and firms used by life/health (L/H) and property/casualty (P/C) insurers. For U.S. insurers, this information is provided in the General Interrogatories Written questions submitted to a party from his or her adversary to ascertain answers that are prepared in writing and signed under oath and that have relevance to the issues in a lawsuit. of their 2004 statutory annual statements. Heavily Concentrated Industries The top four auditing firms (PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG KPMG Klynveld Peat Marwick Goerdeler (accounting firm) KPMG Kaiser Permanente Medical Group KPMG Keiner Prüft Mehr Genau (German) KPMG Kommen Prüfen Meckern Gehen ), collectively known as the Big 4, dominate both the audit and actuarial fields. Audit clients of the Big 4 generated 98% of the 2004 insurance industry's net premiums written. Internal actuaries were used by 1,745, or 46%, of the companies, with L/H companies more likely to use an internal actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. than P/C companies. The companies using internal actuaries accounted for 73% of total industry net premiums written. The remaining 2,016 companies were covered by 200 external actuaries, but not with quite the extreme concentration seen among the auditors. The top four external actuarial firms (PricewaterhouseCoopers, KPMG, Milliman and Deloitte) had clients whose combined net premiums written represented 70% of the industry not covered not covered Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered. by internal actuaries, a concentration that rose to 89% for the top 10 actuarial firms (top four plus Ernst & Young, Tillinghast-Towers Perrin, Reden & Anders, Eckler Partners, Beneficial Consultants and Mercer mer·cer n. Chiefly British A dealer in textiles, especially silks. [Middle English, from Old French mercier, trader, from merz, merchandise, from Latin merx Oliver Wyman Actuarial Consultants), as shown above in "Insurer Market Concentration--Actuarial vs. Audit Firms." The competitive strengths of the Big 4 auditors in auditing the large, publicly held stock insurance companies have left competitive openings for the smaller audit practices in handling insurers with less standard ownership or profit structures. Lloyds, reciprocals, fraternals, state funds and not-for-profit companies often require specialized services. Even with mutual insurance companies, the large servicing firms run into stiff competition from the smaller accounting groups. By insurance company count, the Big 4 audited 80% of stock insurers, while their smaller counterparts serviced 64% of all insurers with other forms of ownership, including mutual. Furthermore, new regulations resulting from Sarbanes-Oxley also may open the door to additional opportunities for smaller firms. While the concentration among auditors in the insurance industry is massive, particularly among larger insurers, the lack of competition is not disproportionate dis·pro·por·tion·ate adj. Out of proportion, as in size, shape, or amount. dis  pro·por to that found in the general concentration of
auditors among large, public companies. A July 2003 General Accounting
(now Government Accountability) office study "Public Accounting
Firms, Mandated Study on Consolidation and Competition," found that
"the Big 4 now audit over 97% of all public companies with sales
over $250 million." In parallel, A.M. Best found that 98.1% of
insurers with more than $250 million in net premiums written were
audited by the Big 4.By Best's Financial Strength Rating, the insurers using the large accounting firms averaged "A-" at year end 2004, regardless of major business segment. Among those companies using the other auditors, however, an average Best's Rating Best's rating A rating A.M. Best Co. assigns to insurance companies based on the company's ability to meet its obligations to its policyholders. of "B++" was seen for P/C insurers, with an average Best's Rating of "B" for L/H companies. The defining characteristic of the actuarial segment was whether an actuary was internal or external. On an individual insurer basis, 46.0% of the companies used an internal or affiliated actuary, 53.1% used an external or unaffiliated actuary, and 0.9% were exempt from providing an actuarial opinion as part of their annual statutory statement. The U.S. Bureau of Labor Statistics Bureau of Labor Statistics (BLS) A research agency of the U.S. Department of Labor; it compiles statistics on hours of work, average hourly earnings, employment and unemployment, consumer prices and many other variables. reports in "Occupational Outlook Handbook, 2004-2005 Edition" that of 15,000 actuaries employed in 2002, six out of 10 were employed by insurance companies, with an increasing proportion of the balance taking jobs with financial consulting firms Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a . Maintaining Independence Sarbanes-Oxley introduced significant legal and regulatory changes for accounting firms that audit publicly held companies, including key provisions delineating the services that an auditing firm can and cannot perform if it wants to retain its "independent" designation. An "independent certified public accountant Certified Public Accountant (CPA) An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. " is qualified as such so long as the individual or firm is in good standing with the American Institute of CPAs (conforming to the Code of Professional Ethics professional ethics, n the rules governing the conduct, transactions, and relationships within a profession and among its publics. professional ethics liability, n 1. ) and in all states in which the firm or accountant is licensed. In order to retain the designation of "independent," accountants traditionally have been restricted from being a member of a client company's management--auditing their own work-and from serving as an advocate for that client. Among those non-audit functions banned under the new legislation are actuarial services. Interestingly, the actuarial services provided by the auditors listed in "Firms Providing Both Audit and Actuarial Services to Same Clients" above do not appear to present a conflict of interest that would jeopardize jeop·ard·ize tr.v. jeop·ard·ized, jeop·ard·iz·ing, jeop·ard·izes To expose to loss or injury; imperil. See Synonyms at endanger. their independent standing under Sarbanes-Oxley. Only actuarially oriented o·ri·ent n. 1. Orient The countries of Asia, especially of eastern Asia. 2. a. The luster characteristic of a pearl of high quality. b. A pearl having exceptional luster. 3. advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal that involve the determination of amounts recorded in the financial statements are considered a potential conflict of interest for firms that also conduct an insurer's independent financial audit. Auditors can perform additional non-audit services, subject to the client's audit committee pre-approval and disclosure, John Lafayette and John Willliams are members of A.M. Best's Analysis and Ratings Research group.
Top Six Actuarial Firms
# of Clients
Milliman 258
PricewaterhouseCoopers 220
Tillinghast-Towers Perrin 210
KPMG 150
Ernst & Young 131
Deloitte 101
Firms Providing Both Audit and Actuarial Services
To Same Clients
Dual Clients
Audit Actuarial
Firm Clients Clients #
Bassman Laserow Stembent 1 1 1
& Buckman
Bruce & Bruce 1 9 1
Deloitte 617 101 90
Ernst & Young 789 131 93
Harry S Tressel & 2 2 2
Associates
KPMG 734 150 105
Lewis & Ellis 1 38 1
PricewaterhouseCoopers 1,064 220 163
SR Snodgrass 4 3 3
Summers Sisiencer & 4 3 3
Callison CPAs
Dual Clients As % of As % of
Audit Actuarial
Firm Clients Clients
Bassman Laserow Stembent 100.0 100.0
& Buckman
Bruce & Bruce 100.0 11.1
Deloitte 14.6 89.1
Ernst & Young 11.8 71.0
Harry S Tressel & 100.0 100.0
Associates
KPMG 14.3 70.0
Lewis & Ellis 100.0 2.6
PricewaterhouseCoopers 15.3 74.1
SR Snodgrass 75.0 100.0
Summers Sisiencer & 75.0 100.0
Callison CPAs
Source: A.M. Best Co.
Top Four Audit Firms # of Clients
PricewaterhouseCoopers 1,064
Ernst & Young 789
KPMG 734
Deloitte 617
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