Business Need Company senior management had concerns about the integrity of the reinsurance recoverables and payable sub-ledger balances due to more stringent reporting and internal control requirements associated with Sarbanes-Oxley. Paragon was engaged to validate the balances. This included identifying duplicate and erroneous system conversion entries, reconciling balances to reinsurers/brokers, and accumulating information to validate and support reinsurance recoverable balances.
Situation Analysis In order for senior management to have a higher level of confidence in the ceded reinsurance recoverables, a substantial portion of the reconciliation needed to be completed by year end in a 90-day timeframe.
Barriers Faced There were over 40,000 records to be investigated within a three-month time period. These transactions related to numerous reinsurance contracts with multiple reinsurers. Additionally, many of the balances were more than 5 years old. The project required the accumulation and comparison of client records to the brokers/reinsurers records. This included manipulation of various sources of broker/reinsurer data and personal visits to client and broker offices as necessary. Obtaining records from all the sources in a short time was a serious challenge, particularly from the overseas markets.
Paragon's Action Paragon accomplished the project goals and met the stringent deadline by combining reinsurance expertise with technology and process skills. We worked with the client, its brokers and direct reinsurers to validate the reinsurance recoverables and payable entries on the sub-ledger.
Paragon used a mixture of automated and manual reconciliation steps to compare client records to the electronic records from the brokers and direct reinsurers. The manual reconciliation included reviewing original contract documentation, claim files, payment histories and recreating billing records. We provided a detailed project plan and scorecards throughout the project to provide assurance milestones were being met.
Results Paragon recognized the impending statutory reporting requirements and restrictions and, accordingly, prioritized broker/reinsurer accounts with the greatest impact on financial results.
By the end of the three-month period, Paragon assisted in reconciling over 90% of the target dollar amount and over 60% of the entire record count. The client then engaged Paragon for an additional period in order to continue the process.
Specific benefits for the customer included:
- Improved confidence in reinsurance reporting
- Identification of viable recoverable opportunities
- Initiation of recovery activity to reduce aged recoverable balances
- Increased confidence in reinsurance data
- Recommendations for ongoing control and audit processes