CAPTIVE INSURANCE COMPANIES ASSOCIATION NATIONAL RISK RETENTION ASSOCIATION RULES OF CORPORATE GOVER

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CAPTIVE INSURANCE COMPANIES ASSOCIATIONNATIONAL
RISK RETENTION ASSOCIATIONRULES OF CORPORATE
GOVERNANCE MARCH 10, 2003ORLANDO, FLORIDAW.
ALVON SPARKS, JR.Veris Consulting, LLP
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I. Corporate Governance Experiences in the
Workplace, 1978-2000

• Advantages/Disadvantages of Internalized
  Corporate Financial Reporting Company in
  Control Independent Auditors Free to Audit
• Audit Committee SEC Reporting, Independent
  Auditors, Consulting Actuaries, Board of
  Directors, Company Counsel, Outside Counsel
• Financial Education Boards of Directors, All
  Employees
• Three Examples Audit Committees of Subsidiary
  Companies Reserve Committee Annual Business
  Plans, Quarterly Officer Meetings, Officer and
  Key Executive Evaluation Meetings

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II. Corporate Governance Today

• What Can You Do?
• 1) Be Interested
• 2) Be Heard
• 3) Become Informed
• Audit Committees need immediate help
• Becoming Informed is a long process
• Cascade, Transparency, Convergence, and
  Independence
• SPEs, VIEs, Bright Lines and Principles
• 4) Participate
• Disclosure Committees
• Reserve Committee
• Management Report Teams
• Internal Control Reviews
• Educating others Board of Directors,
  Employees

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Captive Governance Issues

• From relative obscurity
• to
• Sarbanes Oxley

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Before SO

• Governance issues were infrequently addressed,
  normally only out of need
• Outpost Syndrome - Internal Audit reviewed
  satellite offices at three year intervals,
  Operational Audits
• Findings were directed toward procedural issues,
  e.g., 10 annual payments of 100,000 equals
  1,000,000 for authority purposes
• Minor impact from recommendations
• Asset purchases on credit cards discouraged
  (laptop)
• No subordinate should approve a supervisors
  expenses (meals)

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During SO

• Executive Committee of Board
• Duties reviewed - include financial expertise
  oversight
• Procedure enhanced - anticipate matters for
  approval
• Board Resolutions
• Checks and withdrawals - instituted dual
  signatures
• Expenditures and Liabilities - examined levels
• Custody accounts - eliminate boilerplate
  authorities
• Financial Expertise
• Mandatory - Must be officer or director
• Discretionary -seek advice of qualified
  financial advisors
• not necessarily officer, director or employee of
  entity

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After SO

• Procedures and controls in place for ten years
  are suddenly declared obsolete with little time
  allowed for replacement
• Captive subsidiary confused with parent in
  assessing authorization requirements
• As respects Captive, there is no limit on the
  authority of the Board or its committees
• Captive is required to consider limitation on
  authority of Board arising from second hat
  parent company limitations cascade
• On March 6, 2003, contacted by internal audit
• Initiating a project to document financial
  controls from ground up
• Narrative of each financial process required and
  subject to walkthrough and potential modification
  before end of third quarter