Services Inspection of Records

Reinsurance Compliance Audit 

When initially establishing or renewing a reinsurance treaty relationship, the information that the cedent provides to the reinsurer (either direct or through a broker) is necessarily limited both in extent and depth. For example, how can the reinsurer accurately interpret the historical placing information without knowing the completeness of the cedent's records (and hence whether liabilities will be recognized promptly) and how conservative the cedent's reserving posture may be (and hence the extent to which IBNR/IBNER loss development is likely to arise)? Similarly, if information is provided as to underwriting philosophy or aggregate exposures of a particular type, should these be regarded as statements of intent which can be relied upon or broad guidelines to which there may be many exceptions?

In the past, issues of what one party understood as compared to what the other party intended to be understood has given rise to major, expensive, time-consuming, and often bitter disputes. The expense to both parties, not only in resolving the dispute but also relative to the impact on their underwriting result, has often been millions of dollars.

Through performing a compliance review of the cedent's records of the subject business, many of the factors that give rise to these disputes can be identified and eliminated through discussion between the parties at the outset or renewal of a relationship. This can require audit of underwriting, claims, and accounting records. In the long term, these compliance procedures can save on management time and possible legal expenses. This is only achievable with a full knowledge of the underlying factual position.

Chiltington is pleased to be able to offer its clients this service utilizing its expertise in its three offices in the United States and its presence in London, Europe, and South America. With 25 years’ experience of performing historical inspections of records, Chiltington has the insight to know the issues that really matter and to consider these on a cost effective basis.

A tailor-made inspection work plan is developed in all cases. Typically we will consider the following broad questions through an examination of a representative sample of transactions and individual discussion with the cedent's senior staff:

• Do the represented underwriting philosophies of the cedent appropriately reflect its actual underwriting policy for the subject business? 
• Are adequate controls in place to ensure adherence to the represented underwriting philosophy/guidelines?
• What are the skills and background of the cedent's underwriters for the subject portfolio?
• Is the cedent's case reserving appropriate and conservative?Are initial reserves set on a prompt basis?
• Are case reserves regularly reviewed?
• Do the financial records of the cedent accurately reflect its loss experience as represented by the data in the underlying files?
• Are adequate practices and standards applied in the handling of claims?
• Do regular claim status reviews take place?
• Is adequate control exercised over lawyers handling the cedent's significant claims?
• What are the skills and background of the cedent's claims staff?
• What is the case load of each claim handler and are the claims assigned for handling appropriate to his/her level of skills and experience?
• Are major claims given the attention they deserve?

Chiltington will typically perform engagements of this type for a fixed fee (plus expenses). Hence the cost of our work is known in advance and can be related to the size of the risk being offered to ensure a cost/benefit relationship is maintained.The compliance audit is in no way contentious and will not be seen as such by the cedent. The concept is to establish a more harmonious relationship between cedent and reinsurer, where transparency exists and each has a full understanding of the other's position and intent concerning the relationship.