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Sarbanes-Oxley Spurs ERM

Over half of life insurance company CFOs polled respond to new rules by boosting enterprise risk management, study finds.
David M. Katz, CFO.com | US
February 5, 2003

Finance chiefs at life insurance companies are responding to provisions of the Sarbanes-Oxley Act by boosting their enterprise risk management (ERM) practices, according to a new survey by Tillinghast-Towers Perrrin, the risk management consulting firm.

Fifty-three percent of 30 life insurance CFOs responding to the Web survey said they were reacting to new governance challenges by putting a charge into their companies' ERM effort. CFOs are also participating in industry task groups (43 percent) and refining business strategies to meet emerging requirements(37 percent).

"The Sarbanes-Oxley Act significantly increases the responsibility of CEOs and CFOs for attesting to the integrity of their company's financial statements," noted Jack Gibson, who manages Tillinghast's life insurance and financial services sector in North America. "In the face of this increased responsibility, CFOs are enhancing their ERM practices and are making significant demands for more detailed internal management reports and other information from business managers. Their focus is to increase the internal transparency within their organization to reduce the risk of unpleasant surprises."

Most of the CFOs reported that they are either directly affected by the act or, when they're not, are making or have made changes to comply with its spirit. Only 13 percent believe that some or all of the provisions don't apply to them and don't expect to make any changes soon.

In one seeming response to the act's provisions, 60 percent have changed the nature of their relationship with their audit firm to avoid apparent conflicts of interest. Forty-eight percent of the CFOs are also asking for more information and support from business managers, and 36 percent are increasing the amount of information in internal management reports.

The CFOs were guardedly optimistic about reporting premium and revenue growth in the fourth quarter of 2002. They expected only moderate growth in fourth-quarter premiums versus the same quarter last year, and little or no growth in revenue and net income.

One third of respondents predict an increase of more than 10 percent in fourth-quarter premiums over the same quarter last year, while only 20 percent of CFOs predict greater than 10 percent growth in revenues.




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