Merlinos & Associates provides various consulting services to audit and accounting firms. On audit engagements, our actuaries typically assist the auditor as a specialist (AU 336) in their assessment of the accounting estimates related to the property & casualty and health liabilities of insurance company and self insured clients.  On examination engagements, our actuaries assist accounting firms with their financial examinations of property &casualty and HMO insurance companies for state regulators.  In addition, we assist firms with their business and transaction advisory services engagements.

Evaluation of Self-Insured Liabilities: Audit

Many companies have self-insured property & casualty and/or health exposures.  For many of these entities, the reserves established for these exposures are material to the financial statements. For example, the value of workers’ compensation self-insured reserves are often material accounting estimates for municipalities and professional employer organizations.  For these entities, Merlinos is often engaged to assist the auditor in their assessment of the reasonability of the unpaid claim liabilities. Examples of the types of self insured claim liabilities and the audited entities where we have provided such assistance include:

  • Latent injury exposure of a silica manufacturer.
  • Products liability for a gun manufacturer.
  • Workers’ compensation exposure of professional employment organizations, airline services company, marine products retailer, and staff management company.
  • Termite warranty claim liabilities of a termite treatment company.
  • Auto liability exposure of a trucking firm.
  • Multi-line exposure of an oil and gas services company and a pest extermination company.
  • Self-insured health liabilities.

Evaluation of Insurance Company Liabilities: Audit

Merlinos is often engaged by accounting firms as part of their audits of property & casualty and health insurance companies.  Our audit assistance usually relates to the auditor’s review and test of the process used by management to develop the loss reserve estimate.  We frequently provide the auditor input on the auditor’s testing of the actuarial data for accuracy of coding as well as completeness testing.  With regard to actuarially determined estimates, Merlinos usually performs analytical procedures, a review of the insurance company’s support for their estimates, and, when necessary, independent work to assess the recorded unpaid claim liabilities.

Abbreviated Evaluation of Potentially Material Liabilities

The auditing firm may not have historically engaged a specialist to assess a self-insured or insurance company liability because it did not appear to be sufficiently material.  However, the auditor may want reassurance, perhaps once every several years, that the methodology for determining the booked reserve appears generally reasonable.  Reserve liabilities are a more uncertain estimate than many other liabilities on the balance sheet, and we have seen booked liabilities which were understated by 400% or more.  Merlinos is available to provide an abbreviated analysis to determine if the company booked amount appears of a generally reasonable magnitude.

Evaluation of Insurance Company Liabilities: Regulatory Financial Exams

Our consultants have been involved in hundreds of financial and target examinations of insurance companies, both in partnership with examination/audit firms and working directly for state insurance departments.  The skills and techniques we use to examine an insurance company’s loss and LAE liabilities are similar in nature to those needed for an audit review of a company’s liabilities.  Our examination experience has covered the entire spectrum of property and casualty and health insurance lines of business.  The types of companies we have provided assistance in examining range from single-state, mono-line insurers with less than $1 million in written premium to multi-line groups with nearly $40 billion in net reserves.  We also have extensive experience with risk-focused exams, including producing risk matrices and working in TeamMate© software.

Business and Transaction Advisory Services

Merlinos is also available to assist you in your Business Advisory Services, in order to provide valuable input to your client from an actuarial perspective.  Some of our services include:

  • Assistance in due diligence for financial transactions, as it relates to liabilities for self-insured property and casualty and health exposures.
  • Funding studies for your clients’ self-insured property & casualty and health exposures.
  • Evaluation of your client’s insurance program.  Based on the client’s experience and the total cost of the current program, determine if an alternative program would better meet the client’s needs.
  • Discussions with client related to the level of uncertainty in the actuarial assumptions and selections.


Tom Vasey