Audit Approach for Technical Provisions in Company XXXXX
The document outlines the audit approach for technical provisions of Company XXXXX in compliance with Solvency II reporting requirements. It includes a preliminary notice for discussion with the NBB, risk assessment factors, internal control environment evaluation, and main audit procedures performed. The focus is on accuracy in data input, manipulation, assumptions, model operation, and results reporting to ensure compliance and risk mitigation.
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Approach to the audit of technical provisions (SII reporting) Company XXXXX
Preliminary notice The purpose is to provide the NBB a basis for discussion on the main audit procedures performed with respect to the Best Estimate Life and Non-Life under Solvency II. By having a better view and understanding of the tasks performed by the accredited auditors, the NBB will be in a better position to : understand the weakness(es) reported, align its own duties, and therefore avoid overlaps and act in a complementary way. NBB expects a preliminary support document in order to pursue the open dialog in an efficient way. As such, NBB expects this basis for discussion to focus on the Best Estimate Life and Non-Life under Solvency II, and for these captions, to be more granular than the audit plan or annual report to the audit committee usually provided to the NBB. Proposal is to follow the structure of the IREFI work programme on the Best Estimate Life and Best Estimate Non-Life. Canvas is to be filled in to reflect Life and Non-Life procedures separately Restriction of use NBB agrees that such document is intended solely for its own information and use in the context of the participation of the accredited auditors to the prudential supervision.
Approach to the audit of the technical provisions Risk Assessment Assessment (Low/Medium/High risk) Risk Input data in calculations may be inaccurate Data manipulation and grouping may be inappropriate Actuarial assumptions and back testing may be inappropriate Economic assumptions and back testing may be inappropriate Calculation performed may contains errors Model operation and assessment of results may be inaccurate Results and reporting may be inaccurate (Cash flow) model methodology may not be adequate (Cash flow) model validation may be inappropriate Global opinion on control environment (Level in which the risk of potential misstatements is reduced by the internal control environment of the undertaking) - Satisfactory control environment, low risk of material misstatements - Control environment needs major improvements, minor risk of material misstatements - Control environment needs major improvements, major risk of material misstatements - Control environment is very bag, huge risk of material misstatements
Approach to the audit of the technical provisions Best estimate reserve Provide the list of the main audit procedures performed in relation to the internal control environment and control testing in the following areas: data input; data manipulation and grouping; assumption setting and back testing; Individual tests per model point (e.g. on policy level) performance of calculation; validation of model operation and assessment of results; preparation of results and reporting; performance of model changes on cash flows, expense allocation (etc); Cash flow model validation; Other relevant procedures. Internal control environment and control testing For instance, consider the following types of internal controls : Sense checks, logic checks, cross checks and plausibility checks performed by the Company on the data input, assumptions and the outcome of the calculations; The application of a data quality policy; Input checks on assumptions and other data used in the calculations; Analysis of change and variance analysis; Model governance controls on the authorization, review and sign-off; General IT controls and automated controls on IT-interfaces; Other relevant controls. Best estimate reserve For the areas mentioned above, provide the list of the main substantive procedures performed. For instance, consider: Verification of reconciliations of the data transferred from one system to the other system; Verification of key assumptions; Analysis of management actions in the calculations; Verification of the contract boundaries; Verification if assumptions and cashflow models are in line with the requirements issued by EIOPA; Check of significance of un-modelled business; Other relevant procedures. Substantive procedures
Approach to the audit of the technical provisions Best estimate reserve Free format. Including comments from the accredited auditor. As examples : BEL NON - LIFE (t - 1) 500 Explanations auditor BEL LIFE (t - 1) 10.000 800 Explanations auditor Portfolio growth Focus on the Analysis of change Impact of change in Volume Impact of Guaranteed Interest rates and duration Portfolio growth Impact of change in Volume Guaranteed intrest rate decreased - duration decreased 100 -500 Impact of change in discount curve Impact of change in discount curve -600 500 -400 -240 -25 Parameter change in specified portefolio: change in lapse rates Model change in profit sharing model Impact of change in parameters Parameter update in chain ladder analysis Impact of change in parameters Impact of model changes -100 Other impacts Impact of model changes 0 Unexplained 0 BEL LIFE (t) 9.560 Other impacts 0 Unexplained 0 BEL NON - LIFE (t) 475 Best estimate reserve NBB is willing to have a view on the independent recalculations performed by the auditors. Format is free. As examples : Life : Best estimate policy/modelpoint undertaking Best estimate policy/modelpoint auditor Identified/tested productclasses Level of detail recalculations auditor Focus on the independent recalculations Level of detail undertaking Producttype 1 Producttype 2 Producttype 3 Producttype 4 Producttype 5 Producttype 6 Producttype 7 Producttype 8 Producttype 9 Modelpoint (12 policies) Policy Modelpoint (250 policies) Policy Policy Policy Modelpoint (9 policies) Modelpoint (20 policies) Modelpoint (25 policies) Policy Policy Policy Policy Policy Policy Policy Policy Policy 96.351 5.245 775.555 5.223 5.555 7.921 54.544 144.533 455.555 158.641 5.941 856.111 5.944 3.644 7.952 51.220 192.346 467.944 Non-Life : Identified/tested LOB Motor TPL Fire Best estimate undertaking 150.000 562.000 Best estimate auditor 142.356 515.274
Key messages Best Estimate Liabilities (BEL): Overall result of test work relating to the internal control environment and ITGC; Overview of significant internal control deficiencies (reference relevant sections in the management letter); Summary of (un)corrected audit misstatements: Overview of calculated differences Overview of most likely differences (i.e. in case no exact calculation can be performed) Other relevant matters (model changes, critical assumptions, analysis of change, etc.).
