guide to compliance with state audit · pdf filecpa-zu 04 making progress ... 3-1 model rule...

Guide to Compliance with State Audit Requirements

January 2004

(includes volume/issue 04)

CPA-ZU 04 making progress . . . together

NAIC

© Copyright 1996, 2004 by National Association of Insurance Commissioners All rights reserved.

ISBN 0-89382-964-1

National Association of Insurance Commissioners Publications Department

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No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any storage or retrieval system, without written permission from the NAIC.

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NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

TABLE OF CONTENTS

Forward ................................................................................................................................................................. i

Caveat ............................................................................................................................................................... iii

Summary of Substantive Changes ................................................................................................................................ v

Section I Summary Chart of Audit Rules .......................................................................................................1-1

Section II Summary Outline of Audit Rules.....................................................................................................2-1

NAIC Rule Requiring Annual Audited Financial Statements.............................................................2-3 Alabama Summary Outline .................................................................................................................2-9 Alaska Summary Outline ..................................................................................................................2-13 Arizona Summary Outline.................................................................................................................2-15 Arkansas Summary Outline...............................................................................................................2-17 California Summary Outline .............................................................................................................2-21 Colorado Summary Outline...............................................................................................................2-23 Connecticut Summary Outline ..........................................................................................................2-27 Delaware Summary Outline ..............................................................................................................2-31 District of Columbia Summary Outline ............................................................................................2-35 Florida Summary Outline..................................................................................................................2-39 Georgia Summary Outline.................................................................................................................2-43 Hawaii Summary Outline..................................................................................................................2-47 Idaho Summary Outline ....................................................................................................................2-49 Illinois Summary Outline ..................................................................................................................2-53 Indiana Summary Outline .................................................................................................................2-57 Iowa Summary Outline .....................................................................................................................2-61 Kansas Summary Outline..................................................................................................................2-65 Kentucky Summary Outline ..............................................................................................................2-69 Louisiana Summary Outline..............................................................................................................2-73 Maine Summary Outline ...................................................................................................................2-75 Maryland Summary Outline ..............................................................................................................2-79 Massachusetts Summary Outline ......................................................................................................2-83 Michigan Summary Outline ..............................................................................................................2-87 Minnesota Summary Outline.............................................................................................................2-91 Mississippi Summary Outline ...........................................................................................................2-95 Missouri Summary Outline ...............................................................................................................2-99 Montana Summary Outline .............................................................................................................2-103 Nebraska Summary Outline ............................................................................................................2-107 Nevada Summary Outline ...............................................................................................................2-111 New Hampshire Summary Outline .................................................................................................2-115 New Jersey Summary Outline .........................................................................................................2-117 New Mexico Summary Outline.......................................................................................................2-121 New York Summary Outline...........................................................................................................2-125 North Carolina Summary Outline ...................................................................................................2-129 North Dakota Summary Outline......................................................................................................2-133 Ohio Summary Outline ...................................................................................................................2-137 Oklahoma Summary Outline...........................................................................................................2-141


Oregon Summary Outline ............................................................................................................... 2-143 Pennsylvania Summary Outline...................................................................................................... 2-147 Puerto Rico Summary Outline ........................................................................................................ 2-151 Rhode Island Summary Outline...................................................................................................... 2-155 South Carolina Summary Outline................................................................................................... 2-159 South Dakota Summary Outline ..................................................................................................... 2-161 Tennessee Summary Outline .......................................................................................................... 2-165 Texas Summary Outline ................................................................................................................. 2-169 Utah Summary Outline ................................................................................................................... 2-173 Vermont Summary Outline............................................................................................................. 2-175 Virgin Islands Summary Outline .................................................................................................... 2-179 Virginia Summary Outline.............................................................................................................. 2-183 Washington Summary Outline........................................................................................................ 2-187 West Virginia Summary Outline .................................................................................................... 2-191 Wisconsin Summary Outline .......................................................................................................... 2-195 Wyoming Summary Outline ........................................................................................................... 2-199

Section III Text of NAIC and State Audit Rules ............................................................................................... 3-1

Model Rule (Regulation) Requiring Annual Audited Financial Reports............................................ 3-3 Alabama Regulations ........................................................................................................................ 3-11 Alaska Statutes.................................................................................................................................. 3-19 Arizona Statutes ................................................................................................................................ 3-21 Arkansas Regulations........................................................................................................................ 3-23 California Statutes............................................................................................................................. 3-31 Colorado Regulations........................................................................................................................ 3-33 Connecticut Regulations ................................................................................................................... 3-39 Delaware Regulations ....................................................................................................................... 3-47 District Of Columbia Statutes ........................................................................................................... 3-55 Florida Statutes ................................................................................................................................. 3-63 Georgia Regulations.......................................................................................................................... 3-73 Hawaii Statutes ................................................................................................................................. 3-81 Idaho Regulations ............................................................................................................................. 3-85 Illinois Regulations ........................................................................................................................... 3-93 Indiana Statutes............................................................................................................................... 3-101 Iowa Regulations ............................................................................................................................ 3-115 Kansas Regulations......................................................................................................................... 3-123 Kentucky Regulations..................................................................................................................... 3-131 Louisiana Statutes ........................................................................................................................... 3-139 Maine Statutes................................................................................................................................. 3-141 Maryland Insurance Laws and Regulations .................................................................................... 3-145 Massachusetts Regulations ............................................................................................................. 3-153 Michigan Statutes ........................................................................................................................... 3-161 Minnesota Statutes .......................................................................................................................... 3-169 Mississippi Statutes......................................................................................................................... 3-175 Missouri Statutes............................................................................................................................. 3-181 Montana Regulations ...................................................................................................................... 3-191 Nebraska Regulations ..................................................................................................................... 3-199 Nevada Statutes............................................................................................................................... 3-207 New Hampshire Statutes................................................................................................................. 3-217 New Jersey Regulations.................................................................................................................. 3-219


New Mexico Regulations ................................................................................................................3-227 New York Statutes...........................................................................................................................3-235 North Carolina Regulations.............................................................................................................3-239 North Dakota Administrative Code.................................................................................................3-249 Ohio Statutes ...................................................................................................................................3-257 Oklahoma Statutes...........................................................................................................................3-267 Oregon Regulations.........................................................................................................................3-269 Pennsylvania Regulations................................................................................................................3-277 Puerto Rico Regulations..................................................................................................................3-289 Rhode Island Insurance Regulation.................................................................................................3-297 South Carolina Statutes ...................................................................................................................3-305 South Dakota Statutes .....................................................................................................................3-307 Tennessee Statutes...........................................................................................................................3-313 Texas Statutes..................................................................................................................................3-321 Utah Statutes ...................................................................................................................................3-335 Vermont Statutes .............................................................................................................................3-337 Virgin Islands Insurance Statutes ....................................................................................................3-341 Virginia Administrative Code .........................................................................................................3-345 Washington Regulations..................................................................................................................3-353 West Virginia Insurance Statutes ....................................................................................................3-361 Wisconsin Regulations ....................................................................................................................3-369 Wyoming Insurance Statutes...........................................................................................................3-377

Appendix A ................................................................................................................................................................. A-1

Subsequent Clarification of Statement of Position 95–4 Letters for State Insurance Regulators to Comply with NAIC Model Audit Rule........................................................................ A-3 AICPA Statement of Position 95-4, (Letters to State Insurance Regulators to Comply with the NAIC Model Audit Rule)..................................................................................................... A-7 Introduction ...................................................................................................................................... A-11 Scope ................................................................................................................................................ A-11 Conclusions—Form and Content ..................................................................................................... A-11 Awareness ........................................................................................................................................ A-11 Change in Auditor ............................................................................................................................ A-12 Qualifications ................................................................................................................................... A-13 Notification of Adverse Financial Condition ................................................................................... A-15 Report on Internal Controls .............................................................................................................. A-16 Effective Date................................................................................................................................... A-16

Appendix B NAIC Annual Statement Instructions “Annual Audited Financial Reports” ............................ B-1

Annual Audited Financial Reports Annual Statement Instructions — Property & Casualty ........................................................................................................................... B-3 Annual Audited Financial Reports Annual Statement Instructions — Life, Accident And Health ............................................................................................................... B-11


FORWARD

The NAIC staff has prepared this guide to assist insurers, certified public accountants, and other interested parties in complying with the various state filing requirements for annual audited financial reports. These filing requirements generally provide for, among other things, specific information concerning the filing and content of audited financial reports and other related letters and reports with the state insurance department. They also dictate specific guidelines for partner rotation in the accounting firm and retention and availability of workpapers.

To supplement the information contained herein, a copy of the AICPA’s Statement of Position 95-4, “Letters to State Insurance Regulators to Comply with the NAIC Model Audit Rule,” has been included in appendix A. This document, which provides illustrative guidance concerning the form and content of the letters and reports that may be required to be filed with certain state insurance departments, includes examples for the Letter of Awareness, the Letter of Change in Auditor, the Letter of Qualifications, the Letter of Notification of Adverse Financial Condition, and the Report on Internal Controls.

As of Dec. 31, 1995, all states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands had annual independent audit requirements. In most of these states, the individual state has specific annual audit regulations that govern report and letter filing dates, report and letter content requirements, etc. While many states have adopted the language of the NAIC Model Audit Rule, certain states have variances in the requirements that must be observed. In addition, some states require insurers to file annual audited financial reports in accordance with NAIC Annual Statement Instructions for “Audited Financial Reports,” rather than through specific law or regulation. This section of the instructions mirrors much of the NAIC Model Audit Rule. However, the Annual Statement Instructions differ from the NAIC Model Audit Rule in the following respects:

• The NAIC Annual Statement Instructions do not address possible exemptions for foreign or alien insurers filing audited financial statements in another state.

• The NAIC Annual Statement Instructions exemption relating to an insurer’s size provides an exemption for “Insurers having direct premiums written of less than $1,000,000 in any calendar year...” while the NAIC Model Audit Rule provides an exemption for “Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year...”

• The NAIC Annual Statement Instructions for property — casualty insurers make specific reference to the requirement (refer to AICPA SOP 92-8) that CPAs subject the current Schedule P, Part 1 (excluding those amounts related to bulk and IBNR reserves and claim counts) to the auditing procedures applied in the audit of the current statutory financial statements to determine whether Schedule P, Part 1 is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole.

• The NAIC Annual Statement Instructions for life, accident, and health insurers state that the insurer shall require the independent CPA to subject the information included in the Supplemental Schedule of Assets and Liabilities (see supplemental schedule provided in appendix B) to the auditing procedures applied in the audit of the current statutory financial statements to determine whether such information is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole and agrees to the insurer’s annual statement filed with the state insurance departments and the NAIC.

The supplemental schedule should be included with the audited annual statutory financial statements. The auditor should issue a report on the supplemental information as to whether the information is fairly stated in relation to the financial statements taken as a whole.

i© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


As all licensed insurers are required to follow the NAIC’s Annual Statement Instructions, there will be instances where the instructions’ guidance conflicts with the state’s statute or regulation. In these instances, the accepted practice is to defer to the state’s insurance statutes and regulations.

This publication is not designed to address the annual audit requirements for health maintenance organizations, preferred provider organizations, risk retention groups, and other entities; however, the summaries and regulations of each state included herein may specify the applicability to such entities.

This guide is divided into various sections as follows:

Section I — This section provides a summary chart of significant annual audit requirements for each state in comparison to the requirements of the NAIC Model Audit Rule. However, this chart is not all-inclusive, and users should also refer to Sections II and III of this publication for additional comparisons and state specific exceptions to the NAIC Model Audit Rule. In addition, the due dates referred to in the chart relate only to the due dates of the letters and reports and do not address letter/report content, which may or may not differ from the NAIC Model Audit Rule.

Section II — This section provides, in summary, information for all states concerning the filing and notification due dates, as well as a comparison of major provisions between the state’s audit rule and the NAIC Model Audit Rule. Within the individual state outlines, filing and notification due dates are provided for each state, while additional information concerning letter/report content, partner rotation, workpaper retention, etc., is compared to the NAIC Model Audit Rule. In those situations where a section within the individual state’s statute or regulation does not differ from the NAIC Model Audit Rule, this is so noted on the state summary. Alternatively, if differences have been noted, the applicable sections of the state’s regulation have been included in the summary. For those states that make specific reference to the NAIC Annual Statement Instructions and do not have an audit rule per se, the relevant sections of the state audit regulation have been included, and users should refer to appendix B for a copy of the NAIC Annual Statement Instructions relating to Annual Audited Financial Reports.

Section III — This section includes the text of the NAIC Model Audit Rule, as well as the text of each of the various states’ statutes and regulations regarding the audits of insurance company financial statements.

Appendix A — This appendix contains the AICPA’s Statement of Position 95-4, “Letters for State Insurance Regulators to Comply with the NAIC Model Audit Rule,” which includes an example of the Letter of Awareness, the Letter of Change in Auditor, the Letter of Qualifications, the Letter of Notification of Adverse Financial Condition, and the Report on Internal Controls.

Appendix B — This appendix contains the Annual Audited Financial Reports instructions, per the NAIC Annual Statement Instructions. Instructions for both property — casualty insurers and life, accident, and health insurers have been provided.

_____________________________________________________________________________

Footnotes:

Throughout each of these sections, the term CPA shall refer to independent certified public accountant or public accounting firm.

ii © 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


CAVEAT

The summaries contained herein are not intended to be all-inclusive and should not be relied on solely in determining state-specific requirements. Where a question exists with respect to any requirement, the state’s statute or regulation should be reviewed and, where necessary, the state insurance department should be contacted. Every effort has been made to ensure the contents of this publication is complete and factually correct, but the NAIC makes no warranty as to the completeness or correctness of the information provided. All responsibility for compliance with individual state insurance codes rests solely with the insurance company and its independent auditor. Any errors or omissions noted in the publication should be forwarded to NAIC Executive Headquarters, 2301 McGee Street, Suite 800, Kansas City, Missouri 64108-2662, attention Financial Examination Manager.

iii© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


iv © 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


Summary of Substantive Changes The following represents a summary of the states that had substantive changes in their audit requirements in 2003. The summary depicts those states that had substantial revisions, additions, or deletions to the previous guidance. Therefore, grammatical, formatting, or changes that do not alter the intent of the existing guidance are not included in this summary. ♦ Connecticut — Sec. 38a-54-2 was amended to include definitions for an independent certified public accountant

and indemnification. Sec. 38a-54-4 was amended to reword paragraph (B). Sec. 38a-54-6 was amended to add paragraph (c).

♦ Florida — Florida Statute was amended to change its department name to the Office of Insurance Regulation. ♦ Hawaii — Title 24.431:3-301-302 was amended to include that Annual Filings can be filed on or before March 1. ♦ Idaho — IDAPA 18.01.62 § 004 was amended to include the definition for Indemnification. ♦ Kansas — The Summary Chart of Audit Rules was amended to reword the Awareness Letter Deadline to indicate

that a CPA need only file once prior to the first audit, however, a change in auditors would necessitate a new awareness.

♦ Maryland — The Summary Chart of Audit Rules was amended to reword the Audit Report Deadline indicating

the deadline is March 1 for nonprofit health service plans and managed care organizations, April 1 for dental plan organizations, and June 1 for property and casualty, life and health, title, health maintenance organizations and fraternal.

♦ New York — 307(b) was amended to reword Section III, the Audit Report, paragraph (C). ♦ North Carolina — 11 NCAC 11A.0501 was amended indicating insurers must notify the Department of the

exempt status on or before October 1 of each year. ♦ Oklahoma — The Summary of Audit Rules was amended for Size of Exemption to follow the NAIC Model Audit

Rule. ♦ Pennsylvania — § 147.13 was amended to delete (1) and (2) of paragraph (K). ♦ South Dakota — SDSL 58-43-4 was amended to bring South Dakota statute into compliance with accreditation

standards. ♦ Virginia — 14 VAC 5-270-40 and 14 VAC 5-270-80 were amended to include NAIC model provisions regarding

Indemnification Clauses. ♦ Washington — WAC 284-07-100 and 284-07-110 were amended requiring CPA reports to be filed electronically

and adding fraternal benefit societies to the requirements. ♦ Wisconsin — The Summary Chart of Audit Rules was amended for workpaper requirements to follow the NAIC

Model Audit Rule, except for definitions of work papers see s.Ins.50.01 (9) Wis. Adm. Code.

v© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


vi © 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


SECTION 1 SUMMARY CHART OF AUDIT RULES

1-1© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


Section I — This section provides a summary chart of significant annual audit requirements for each state in comparison to the requirements of the NAIC Model Audit Rule. However, this chart is not all-inclusive, and users should also refer to Sections II and III of this publication for additional comparisons and state specific exceptions to the NAIC Model Audit Rule. In addition, the due dates referred to in the chart relate only to the due dates of the letters and reports and do not address letter/report content, which may or may not differ from the NAIC Model Audit Rule.

1-2 © 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners

NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS SUMMARY CHART

NAIC Model Rule Alabama Alaska * Arizona * Applicability All licensed or authorized

insurers. All licensed insurers. All authorized insurers. All licensed insurers. See

(*******) at the end of this section.

Size Exemptions

Allowed for insurers having direct premiums in domestic state of < $1,000,000 in any calendar year and < 1,000 policyholders nationwide, unless reinsurance premiums assumed exceed $1,000,000.

Same as NAIC Model Audit Rule.

Allowed for insurers having direct premiums of < $1,000,000 and < 1,000 policyholders nationwide, unless reinsurance premiums assumed exceed $1,000,000.


Exemption for Filing in Other States

Allowed if audited reports are deemed substantially similar and audited report, Internal Control Report, Qualification Letter, and Notification of Adverse Condition filed.


Not addressed. Not addressed.

Partner Rotation

Partner limited to seven consecutive years after which he/she cannot act in that capacity for two years.




Workpaper Requirements

Retained until Report of Examination covering period is issued, but no longer than seven years.




FILING DEADLINES

Audit Report June 1. Same as NAIC Model Audit Rule.



Designation of Auditor

Within 60 days after becoming subject to regulation.




Qualification Letter

June 1. Same as NAIC Model Audit Rule.



Awareness Letter

Due date not specified. Same as NAIC Model Audit Rule.



Internal Control Letter

Within 60 days after filing of audited financial statements; none if no significant deficiencies noted.




Adverse Condition

CPA must notify insurer within five days; insurer shall notify Commissioner within five days of notification.




Change in Auditor

Insurer must notify Commissioner within five days of dismissal or resignation of auditor.





SUMMARY CHART NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

Arkansas California * Colorado Connecticut Applicability All authorized insurers. All insurers doing business

in California. All licensed or authorized insurers.

All licensed insurers.

Size Exemptions







Not addressed. Same as NAIC Model Audit Rule.


Partner Rotation



Domestic insurers — limited to five consecutive years; Foreign/alien insurers — limited to seven consecutive years.







FILING DEADLINES

Audit Report Same as NAIC Model Audit Rule.







For domestic insurers, within 60 days after becoming subject to regulation.







Awareness Letter










Adverse Condition





Change in Auditor







Delaware D.C. Florida Georgia Applicability All licensed insurers. All licensed or authorized

insurers. All authorized insurers. All licensed insurers.

Size Exemptions



Same as NAIC Model Audit Rule, although insurer must submit affidavit by March 1 specifying Florida premiums and number of policyholders.







Partner Rotation










FILING DEADLINES








By Dec. 31 of year subject to audit.







Awareness Letter



By Dec. 31 of year subject to audit.





June 1 (filed with audited financial reports).


Adverse Condition





Change in Auditor







Hawaii * Idaho Illinois Indiana Applicability All domestic insurers. All licensed insurers. All licensed insurers. All insurers unless

exemption criteria is met.

Size Exemptions



Foreign and alien insurers having direct written premiums of < $1,000,000 in any calendar year, unless reinsurance assumed premiums exceed $1,000,000.

Domestic insurers having direct premiums written of < $1,000,000 and < 1,000 policyholders of directly written policies nationwide.





Partner Rotation






For captive insurers, workpapers shall be retained for five years. All others, same as NAIC Model Audit Rule.




FILING DEADLINES

Audit Report June 30 — captives (other than class 3); June 1 — all other insurers.














Awareness Letter







June 1 (filed with audited financial statements).

June 1 (filed with audited financial statements).


Adverse Condition

See (****) for discussion of notification of adverse condition.




Change in Auditor



Same as NAIC Model Audit Rule. Insurer shall also notify Director within 30 days of engaging new auditor.




Iowa Kansas Kentucky Louisiana * Applicability All licensed insurers. All insurers. All authorized insurers. All admitted insurers.

Size Exemptions




Allowed for insurers having direct premiums of < $1,000,000 and < 1,000 policyholders nationwide, unless reinsurance premiums assumed exceed $1,000,000, see (**) at the end of this section.





Not addressed.

Partner Rotation


Same as NAIC Model Audit Rule. Rotation requirements shall accrue from Jan. 1, 1995.








FILING DEADLINES















Awareness Letter


The CPA need only file once prior to the first audit, however, a change in auditors would necessitate a new awareness letter – per Department ruling








Adverse Condition





Change in Auditor







Maine Maryland * Massachusetts Michigan Applicability All domestic insurers

except those transacting business per Ch. 51 of Ins. Code. A foreign or alien insurer shall file upon request.

All authorized insurers. All insurers. All authorized insurers.

Size Exemptions

Insurers having written premiums in Maine of < $100,000 in the preceding year.


See (***) at the end of this section.

Insurers having direct premiums written in Michigan of < $1,000,000 in any year and < 1,000 policyholders in the State of Michigan. In addition, see (*****) for further size exemption.


Not addressed. Not addressed. Not addressed. Same as NAIC Model Audit Rule except that the submission of a Qualification Letter is not addressed.

Partner Rotation






Retained for a period of not less than six years after period reported on.



Retained for a period of not less than five years after period reported on.

FILING DEADLINES

Audit Report June 1. March 1 for nonprofit health service plans and managed care organizations, April 1 for dental plan organizations, June 1 for property and casualty, life and health, title, health maintenance organizations and fraternal.













Awareness Letter





June 1 with the filing of audited financial statements; none if no significant deficiencies noted.


Adverse Condition

CPA shall immediately notify all Board of Directors and the Superintendent upon detection.


CPA shall notify insurer immediately but not later than five days upon detecting such condition.


Change in Auditor






Minnesota Mississippi Missouri Montana Applicability All insurers doing

business in the State of Minnesota.

All insurers. All certified or authorized insurers.

All licensed or authorized insurers.

Size Exemptions



Not addressed, although Missouri Insurance Dept. practice dictates NAIC Model Audit Rule is to be followed.




Not addressed. Same as NAIC Model Audit Rule except that the submission of a CPA Qualification Letter is not addressed.


Partner Rotation

Same as NAIC Model Audit Rule for calendar year 1997 thereafter.






Workpapers retained until Insurance Dept. files a Report of Examination covering period of audit.



FILING DEADLINES















Awareness Letter










Adverse Condition





Change in Auditor







Nebraska Nevada New Hampshire* New Jersey Applicability All licensed insurers. All licensed insurers. All authorized insurers. All licensed insurers.

Size Exemptions

Foreign and alien insurers having direct premiums of < $1,000,000 and < 1,000 policyholders nationwide, unless reinsurance premiums assumed exceed $1,000,000.







Not addressed. Allowed if audited reports are deemed substantially similar and audit report is filed with Commissioner along with other required reports.

Partner Rotation







Until Insurance Division completes exam of audited financial report, but < seven years.


Retained until Report of Examination covering period is issued, but no longer than 10 years.

FILING DEADLINES















Awareness Letter










Adverse Condition

CPA shall notify insurer (notification date not specified). Insurer must notify Director within five days of notice.




Change in Auditor







New Mexico New York North Carolina North Dakota Applicability All licensed and

authorized insurers. All licensed and authorized insurers.

All licensed and authorized insurers.

All licensed insurers other than those licensed exclusively in North Dakota.

Size Exemptions


An assessment cooperative property casualty insurer having direct premiums written in New York of < $250,000 in any year and having < 500 policyholders at the end of such year.

Insurers having direct premiums written in North Carolina of < $250,000 and < 500 policyholders in North Carolina.




Allowed if audited reports are deemed substantially similar and audit report is filed with Commissioner along with other required reports.

Same as NAIC Model Audit Rule except that the submission of a CPA Qualification Letter is not addressed.


Partner Rotation

Same as NAIC Model Audit Rule





Workpapers must be retained for six calendar years from its creation or until after the filing of the Report of Examination, which the record was subject to review, whichever is longer. (Regulation 152)



FILING DEADLINES


May 31. May 10. Same as NAIC Model Audit Rule.







Written contract filed prior to first year engagement.

October 1. Addressed in accountant’s appointment letter.


Awareness Letter


Not addressed. October 1. Addressed in accountant’s appointment letter.




May 31 (with audit report). May 10 (filed with audit report).


Adverse Condition


CPA must notify Superintendent within 15 days.

CPA shall immediately notify the insurer; insurer shall notify the Commissioner within five days of notification.


Change in Auditor


Not addressed. Insurer shall notify the Commissioner within 30 days of date new auditor is engaged.




Ohio Oklahoma* Oregon Pennsylvania Applicability All licensed insurers. All authorized insurers. All licensed and

authorized insurers. All licensed insurers.

Size Exemptions




See (******) at the end of this section.





Partner Rotation



Same as NAIC Model Audit Rule, effective Dec. 31, 1993.

Same as NAIC Model Audit Rule. Effective for years beginning after Nov. 11, 1997.






FILING DEADLINES








Within 30 days of effective date of engagement letter where a change in auditor occurs







Awareness Letter










Adverse Condition





Change in Auditor







Puerto Rico Rhode Island South Carolina* South Dakota Applicability All domestic insurers. All authorized insurers. All authorized insurers. All licensed or authorized

insurers.

Size Exemptions

Domestic insurers having premiums written in Puerto Rico of < $100,000 or that have < 1,000 policyholders at the end of any year.





N/A — audit regulation applied to domestic insurers only.



Partner Rotation





Workpapers shall be retained for a period of not less than five years after the year audited.




FILING DEADLINES

Audit Report June 30. Same as NAIC Model Audit Rule.




Within 30 days after becoming subject to regulation.



At least six months prior to filing first audit report.





Awareness Letter






June 30 (filed with audit report).




Adverse Condition

CPA shall immediately notify the insurer; insurer shall notify the Commissioner within 5 days of notification.




Change in Auditor

Insurer must notify Commissioner within 30 days of dismissal or resignation of auditor.






Tennessee Texas Utah* Vermont Applicability All licensed and

authorized insurers. All authorized insurers. All authorized insurers. All licensed insurers.

Size Exemptions


Allowed for insurers having < $1,000,000 in direct premiums in Texas, unless reinsurance premiums assumed exceed $1,000,000; affidavit required.


Insurers having direct premiums written in Vermont of < $250,000 and < 500 policyholders nationwide, unless reinsurance premiums assumed exceed $250,000.




Authorized insurers filing their Annual Audited Financial Reports with the NAIC are not required to file with the state.


Partner Rotation

Same as NAIC Model Audit Rule, effective Dec. 31, 1997.



Same as NAIC Model Audit Rule. Period prior to resumption not addressed.






FILING DEADLINES






Not later than Dec. 31 of the year covered by the audit report.


Not specified.




Not specified (filed with Designation of Auditor Letter).

Awareness Letter


Not later than Dec. 31 (filed with Designation of Auditor letter).


Separate letter not required — See Qualification Letter.



Within 60 days after filing of audited financial statements if significant deficiencies are noted.


Within 60 days after filing of audited financial statements; insurer shall notify Commissioner within five days of receipt of report.

Adverse Condition


CPA shall immediately notify the insurer; insurer shall notify the Commissioner within five days of notification.



Change in Auditor







Virginia Virgin Islands Washington West Virginia Applicability All licensed insurers. All authorized insurers. All insurers as set forth in

RCW 48.01.050. All domestic insurers and licensed foreign/alien insurers.

Size Exemptions

Insurers having direct premiums written of < $1,000,000 and < 1,000 policyholders unless reinsurance assumed premiums exceed $1,000,000.


Insurers having direct written premiums of < $1,000,000, in any calendar year and < 1,000 policyholders nationwide, unless reinsurance premiums assumed exceed $1,000,000.

Companies which qualify for the size exemption from filing an annual audited financial report allowed by the NAIC annual statement instructions may request a hardship exemption pursuant to Code 33-33-13.






Partner Rotation






Same as NAIC Model Audit Rule except Section 13A is not included.




FILING DEADLINES

Audit Report Domestic insurers — June 1; Foreign and alien insurers — June 30.








Filed with audit report. June 30. Same as NAIC Model Audit Rule.


Awareness Letter

Within 60 days after becoming subject to the state’s audit requirement.








Adverse Condition




CPA shall immediately notify insurer and the Commissioner upon detection of such condition.

Change in Auditor



Same as NAIC Model Audit Rule. Additionally, insurer shall also notify Commissioner within 30 days of engaging successor auditor.



Wisconsin Wyoming Applicability All licensed insurers. All insurers as defined in

W.S. 26-1-102(a)(xvi).

Size Exemptions

Allowed for insurers having direct premiums in Wisconsin of < $100,000 in any calendar year and < 1,000 policyholders in this state, unless reinsurance premiums assumed nationwide exceed $1,000,000.

Allowed for insurers having direct premiums in this state of < $1,000,000 in any calendar year or < 1,000 policyholders nationwide, unless reinsurance premiums assumed exceed $1,000,000.




Partner Rotation


After April 1, 1996, same as NAIC Model Audit Rule.


Same as NAIC Model Audit Rule, except for definition of workpapers see s. Ins. 50.01 (9) Wis. Adm. Code.


FILING DEADLINES









Awareness Letter






Adverse Condition



Change in Auditor





Symbol Legend

* State regulation refers to the NAIC Annual Statement Instructions regarding specific audit requirements.

** In addition to the size exemption identified above, Louisiana provides a further exemption as follows: “The insurer is a domestic life insurer which does business exclusively in the state of Louisiana, with gross annual premiums totaling $25,000,000 or less and has entered into reinsurance agreements having a net aggregate amount of $5,000,000 or less and has admitted assets of less than $25,000,000. No domestic life insurer under this subsection that fails to satisfy the financial solvency requirements promulgated by the Department of Insurance shall be exempt from the provisions of this part.”

Louisiana also provides a small company exemption as follows: “The insurer is a domestic life insurer which does business exclusively in the state of Louisiana, with admitted assets not exceeding $10,000,000 and having gross annual premiums not exceeding $2,000,000.” These companies are exempt from filing quarterly statements, management discussion and analysis, computer filings of the annual statement, holding company statements, and risk based capital statements. The commissioner may request these filings if it appears in the discretion of the commissioner that the condition of a small company renders the continuance of its business hazardous to the public or its insured.

*** Massachusetts’ size exemption is as follows: “Insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of such calendar year, except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more and insurers having both premium written in Massachusetts of $100,000 or more in any year and having 1,000 or more Massachusetts policyholders at the end of the year will not be so exempt.”

**** Hawaii Regulations regarding the notification of adverse condition requires Hawaiian captive insurers to notify the executive officers and the board of directors that the captive has materially misstated its financial condition or is in adverse financial condition. The captive must then notify the Commissioner within five working days. For all insurers other than captives, the notification requirement is per the NAIC Model Audit Rule.

***** Domestic insurers transacting business only in Michigan that have direct premiums of less than $10,000,000 in any year, write or assume reinsurance for only property-based coverage, and are not part of an insurance holding company system whose members have total direct written premiums of more than $10,000,000 in any year.

****** Foreign or alien insurers having direct premiums written in Pennsylvania of less than $1,000,000 in a calendar year and having fewer than 1,000 policyholders or certificate holders of directly written policies in Pennsylvania at the end of that calendar year are exempt from this requirement for that year. Foreign insurers having assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1,000,000 or more are not exempt.

Domestic insurers having total admitted assets less than $10,000,000 direct premiums written nationwide less than $1,000,000 in a calendar year and having fewer than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of that calendar year are exempt from this requirement for that year. Domestic insurers having total admitted assets greater than $10,000,000 or assumed premiums pursuant to contracts or treaties, or both, of reinsurance of $1,000,000 or more are not exempt.

Insurers domiciled in Pennsylvania and not transacting the business of insurance outside of Pennsylvania having total admitted assets less than $10,000,000 and either direct premiums written of less than $1,000,000 in a calendar year or fewer than 1,000 policyholders or certificate holders of directly written



policies at the end of that calendar year are exempt from this requirement for that year. Insurers having total admitted assets greater than $10,000,000 or assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1,000,000 or more are not exempt.

******* Unaffiliated credit life and disability (UCLD) reinsurers are exempt from these requirements. UCLD reinsurers are a subset of Arizona domestic life and disability reinsurers. They are not affiliated with any other insurers and reinsure only credit life insurance or credit disability insurance.



SECTION 2 SUMMARY OUTLINE OF AUDIT RULES



Section II — This section provides, in summary, information for all states concerning the filing and notification due dates, as well as a comparison of major provisions between the state’s audit rule and the NAIC Model Audit Rule. Within the individual state outlines, filing and notification due dates are provided for each state, while additional information concerning letter/report content, partner rotation, workpaper retention, etc., is compared to the NAIC Model Audit Rule. In those situations where a section within the individual state’s statute or regulation does not differ from the NAIC Model Audit Rule, this is so noted on the state summary. Alternatively, if differences have been noted, the applicable sections of the state’s regulation have been included in the summary. For those states that make specific reference to the NAIC Annual Statement Instructions and do not have an audit rule per se, the relevant sections of the state audit regulation have been included, and users should refer to appendix B for a copy of the NAIC Annual Statement Instructions relating to Annual Audited Financial Reports.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MODEL

NAIC RULE REQUIRING ANNUAL AUDITED FINANCIAL STATEMENTS

I. FILING/NOTIFICATION DUE DATES

A. Audit Report: June 1 (commissioner may request report earlier with 90 days notice).

B. Designation of Auditor: Within sixty (60) days after becoming subject to this regulation.

C. Qualifications Letter: June 1.

D. Awareness Letter: Not specified.

E. Report on Significant Deficiencies in Internal Controls: No report is required if no significant internal control deficiencies are identified. Within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.

F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify commissioner within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify commissioner within five (5) business days of dismissal or resignation of auditor. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All licensed or authorized insurers.

III. AUDIT REPORT

A. Accounting Method

1. Statutory accounting practices prescribed, or permitted, by department of insurance in state of domicile.

B. Scope and Content

1. Examination shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to procedures in the Financial Condition Examiners Handbook promulgated by the NAIC.

2. The contents of the audited financial report shall include the following:

a. Report of the Independent Auditor

b. Balance Sheet

c. Statement of Operations

d. Statement of Cash Flows


MODEL NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

e. Statement of Changes in Capital and Surplus

f. Notes to Financial Statements

• Notes shall be those required by the NAIC Annual Statement Instructions and NAIC Accounting Practices and Procedures Manual.

• Reconciliation between the audited statutory financial statements and Annual Statement with a written description of differences.

g. Statements shall be comparative.

C. Exemptions

1. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for the year (unless the commissioner makes a specific finding that compliance is necessary for the commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

2. Foreign or alien insurers filing audited financial reports in another state which have been found by a particular state’s insurance commissioner to be substantially similar to the requirements of that state, are exempt from that rule if:

a. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications are filed with the state insurance commissioner in accordance with the state’s filing dates specified in the state’s code;

b. A copy of any Notification of Adverse Financial Condition Report is filed with the commissioner within five (5) days of the insurer’s board of directors’ notification.

3. Commissioner may grant hardship exemption.

D. Extensions

1. Extensions may be granted by the commissioner for thirty (30) day periods. The request for extension must be submitted in writing and received by the insurance department not less than ten days prior to June 1.

E. Consolidated Audits

1. Insurer may apply for approval to file audited consolidated financial statements if insurer is part of an insurance group using pooling or 100% reinsurance and the insurer cedes all of its direct and assumed business to the pool.

2. Consolidating worksheets shall be filed with report showing:

a. Amounts shown in the audited consolidated financial report.



b. Amounts for each insurer stated separately.

c. Noninsurance operations may be shown on the worksheet on a combined or individual basis.

d. Explanation of consolidating or eliminating entries.

e. Reconciliation of differences between individual insurer totals and amounts shown in Annual Statements of insurers.

IV. DESIGNATION AND QUALIFICATION OF CPA

A. Designation of CPA

1. Name and address of CPA shall be registered with the commissioner within sixty (60) days after becoming subject to this requirement.

B. General Qualifications of CPA

1. In good standing with the American Institute of CPA’s and in all states licensed to practice.

2. Conforms to professional standards.

3. CPA convicted under federal or state law, found to have violated state insurance law, or demonstrated a pattern or practice of failing to detect or disclose material information shall not be considered qualified.

V. QUALIFICATION LETTER

A. Qualification Letter (shall include):

1. CPA is independent and conforms to professional standards.

2. Background and experience of individuals assigned to engagement, including their experience in the audits of insurers, and whether each is a CPA.

3. CPA understands annual audited financial report and opinion thereon will be filed in compliance with this requirement and that the commissioner will rely on this information in monitoring and regulating the insurer.

4. Consents to workpaper requirements (See section XI below).

5. CPA is licensed by an appropriate state authority and is a member in good standing with the AICPA.

6. CPA is in compliance with qualification requirements (see section IV above).

VI. PARTNER ROTATION

A. Partner Rotation and Application of Relief



1. Partner rendering report limited to that capacity for no more than seven (7) consecutive years. After seventh year, partner cannot act in this capacity for the company or its affiliates or subsidiaries for two (2) years.

2. Insurer may make an application of relief from requirement to commissioner.

VII. AWARENESS LETTER

A. Awareness Letter

1. CPA shall furnish insurer with letter to be filed with the commissioner indicating CPA is aware of provisions of the insurance code and rules and regulations of the insurance department of state of domicile. Letter shall also affirm CPA will express his opinion on the financial statements in terms of conformity with statutory accounting practices prescribed or permitted by the department and specify exceptions.

VIII. SIGNIFICANT DEFICIENCIES IN INTERNAL CONTROLS

A. Report on Internal Controls

1. Pursuant to SAS 60, the CPA shall report significant deficiencies within the internal control structure to insurer.

2. Insurer has sixty (60) days after filing of the annual audited financial statements to furnish the commissioner with a written report describing such deficiencies, as well as a description of remedial or proposed action to be taken to correct significant deficiencies.

3. No report is issued if no significant deficiencies are identified.

IX. ADVERSE CONDITION

A. Report on Adverse Condition

1. CPA shall report, in writing, within five (5) business days to the board of directors or its audit committee any determination that insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of its domiciliary state.

2. Insurer has five (5) business days from receipt of report to forward a copy to the commissioner and provide evidence to CPA that such report was furnished to the commissioner.

3. If such evidence is not received from insurer within the five (5) business day period, the CPA shall furnish the commissioner with a copy of the report within five (5) business days.

X. CHANGE IN AUDITOR

A. Change in Auditor

1. Insurer shall notify commissioner within five (5) business days if CPA is dismissed or resigns.

2. Insurer shall furnish commissioner with separate letter within ten (10) business days of notification stating any disagreements with CPA in preceding twenty-four (24) months



involving accounting principles or practices, financial statement disclosure, or audit scope or procedure.

3. Insurer shall also request CPA to furnish letter stating whether the CPA agrees with insurer’s letter to the commissioner. CPA’s responsive letter shall be furnished to the commissioner.

XI. WORKPAPER REQUIREMENTS

A. Workpaper Requirements

1. Workpapers shall be made available for review by insurance department examiners at the offices of the insurer, at the insurance department or at any other reasonable place designated by the commissioner.

2. Workpapers shall be retained until insurance department files a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

XII. OTHER

A. Alien Insurers

1. British and Canadian insurers shall file domiciliary audited financial report on total business audited by independent chartered accountant.

2. British and Canadian insurers are required to file an awareness letter.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ALABAMA

ALABAMA SUMMARY OUTLINE

Alabama Insurance Department Regulation 100


A. Audit Report: June 1

B. Designation of Auditor: Within sixty (60) days after becoming subject to this regulation

C. Qualification Letter: June 1

D. Awareness Letter: Not specified

E. Report on Significant Deficiencies in Internal Controls: No report is required if no significant internal control deficiencies are identified within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.

F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation of auditor. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All licensed insurers in State of Alabama.

III. AUDIT REPORT


1. Same as NAIC Model Audit Rule.




C. Exemptions


2. Same as NAIC Model Audit Rule. However, the State of Alabama has issued a Bulletin that foreign insurers are not required to submit an audited report unless they get a specific request from the Alabama Commissioner of Insurance to do so.



ALABAMA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

D. Extensions





IV. DESIGNATION AND QUALIFICATIONS OF CPA








A. Qualification Letter












A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ALASKA

ALASKA SUMMARY OUTLINE

Alaska Insurance Regulation Title 21, Chapter 9

Title 21, Chapter 9 of the Alaska Insurance Law states:

“Each authorized insurer shall annually, before March 2, file with the Director or the director’s designee a full and true statement of its financial condition, transactions, and affairs as of the preceding December 31. The reporting format for a given year is the most recently approved National Association of Insurance Commissioners’ annual financial statement blank form and instructions, supplemented for additional information as required by the director.”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ARIZONA

ARIZONA SUMMARY OUTLINE

Arizona Insurance Regulation Title 20, Chapter 2, Article 1, Section 20-223

Title 20, Chapter 2, Article 1, Section 20-223 of the Arizona Insurance Law states:

“Each authorized domestic insurer shall annually on or before March 31 and each other authorized insurer shall annually on or before March 1 file with the Director a true statement of its financial condition, transactions and affairs as of the December 31 preceding. The statement shall be completed pursuant to the instructions and accounting practices and procedures that are approved by the National Association of Insurance Commissioners. The statement shall be in such general form and context as approved by the National Association of Insurance Commissioners for the kinds of insurance to be reported upon, and as supplemented for additional information required by the Director. The Director shall adopt rules providing requirements for the filing of annual audited financial statements.”

Pursuant to 1991, ch. 261, § 35, “Until the rules are adopted by the Director of Insurance providing requirements for the filing of annual audited financial statements as required by section 20-223, Arizona Revised Statutes, as amended by this act, each authorized domestic insurer shall file its annual audited financial statements pursuant to the National Association of Insurance Commissioners Annual Statement Instructions requiring annual audited financial statements.”

Title 20, Chapter 4, Article 10, Section 20-1083 of the Arizona Insurance Law provides an exemption for unaffiliated credit life and disability reinsurers from the requirement to file annual audited financial statements.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ARKANSAS

ARKANSAS SUMMARY OUTLINE

Arkansas Insurance Regulation 25







F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors in writing within five (5) business days of detecting such condition. Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation of auditor. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on any matter related to accounting principles or practices, financial statement disclosure or auditing scope or procedure.

II. APPLICABILITY

A. All insurers authorized by a subsisting certificate of authority to transact insurance in the state of Arkansas. Insurers having less than $1 million in Direct Written Premium in Arkansas and less than 1,000 direct policyholders or certificate holders nationwide are exempt for that year unless the insurer has assumed premiums greater than or equal to $1 million.

III. AUDIT REPORT






C. Exemptions




ARKANSAS NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS


D. Extensions









1. Same as NAIC Model Audit Rule. (Except Arkansas has not adopted the 2001 Proc. 4th Quarter amended changes.)

2. Same as NAIC Model Audit Rule. (Except Arkansas has not adopted the 2001 Proc. 4th Quarter amended changes.)

















A. Awareness Letter



A. Internal Control Letter


















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS CALIFORNIA

CALIFORNIA SUMMARY OUTLINE

California Insurance Code Part 2, Chapter 1, Article 10, Section 900.2

Part 2, Chapter 1, Article 10, Section 900.2 of the California Insurance Code states:

“All insurers doing business in this state shall have an annual audit by an independent certified public accountant. The audit shall be conducted and the audit report prepared and filed in conformity with the Annual Audited Financial Reports instructions contained in the Annual Statement Instructions as adopted from time to time by the National Association of Insurance Commissioners.

The Commissioner may grant a 30-day extension of the filing date upon a showing by the insurer and its independent certified public accountant of the reasons for requesting that extension and the determination by the Commissioner of substantial cause for an extension. The request for an extension shall be submitted in writing not less than 20 days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision on the requested extension.

The Commissioner may promulgate regulations to further the purposes of this section.”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS COLORADO

COLORADO SUMMARY OUTLINE

Colorado Regulations - Division of Insurance, Part III, Section 1, Regulation 3-1-4


A. Audit Report: June 1 (Mailing date postmarks on or before June 1 do not constitute date received)

B. Designation of Auditor: For Colorado domestic insurers, within sixty (60) days after becoming subject to this regulation




F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors within five (5) business days of detection such condition. Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurers must notify Commissioner within five (5) business days of dismissal or resignation of auditor. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All licensed insurers in Colorado as well as authorized surplus lines insurance companies, authorized non-admitted reinsurers, nonprofit hospitals, medical-surgical, and health service corporations, risk retention groups, fraternal benefit societies and health maintenance organizations.

III. AUDIT REPORT






C. Exemptions




COLORADO NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

3. Colorado Commissioner may grant hardship exemption. Application for exemption must be received on or before December 31 of the year for which such exemption is sought.

D. Extensions





IV. QUALIFICATIONS AND DESIGNATION OF CPA


1. Each Colorado domestic company shall register with the Commissioner in writing the name and address of the CPA within sixty (60) days after becoming subject to such requirement.



2. Not addressed.



A. Letter of Qualification






6. Not addressed.


A. Partner Rotation

1. No partner or person responsible for rendering a report may act in that capacity for more than five (5) consecutive years for a Colorado domestic company and no more than seven (7) years for a foreign or alien company without approval of Commissioner. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its affiliates for a period of two (2) years.





A. Awareness Letter

1. CPA shall furnish domestic insurer with letter to be filed with the Commissioner indicating CPA is aware of provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of Colorado. Letter shall also affirm CPA will express his opinion on the financial statements in terms of conformity with statutory accounting practices prescribed or permitted by Department and specify exceptions.




















XII. OTHER

A. Alien Insurers



1. Not addressed.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIRMENTS CONNECTICUT

CONNECTICUT SUMMARY OUTLINE

Connecticut Regulations Title 38a







F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.


II. APPLICABILITY

A. All insurance companies licensed to do business in Connecticut.

III. AUDIT REPORT






C. Exemptions




D. Extensions


CONNECTICUT NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIRMENTS

























A. Awareness Letter



NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIRMENTS CONNECTICUT








1. Same as NAIC Model Audit Rule












The CPA or the officers of the insurer may request in writing that workpapers be held as confidential information and exempted from disclosure to the public pursuant to Section 1-19(b)(5) of the Connecticut General Statutes as constituting commercial or financial information given in confidence under Sections 38A-14(j) and 38A-69A of the Connecticut General Statutes. In the event any workpapers are requested to be held in confidence, the workpapers shall be identified under separate cover or in a sealed envelope or file clearly labeled “CONFIDENTIAL.” Attached to the workpapers submitted under confidential cover shall be a brief, typed explanation of why they are to be considered confidential. Documentation so submitted, if found to be confidential in nature by the Insurance Department, will not be released to the general public for inspection or copying.

XII. OTHER

A. Alien Insurers



CONNECTICUT NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIRMENTS



NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS DELAWARE

DELAWARE SUMMARY OUTLINE

Delaware Regulations, Department of Insurance Regulation 50






E. Report on Significant Deficiencies in Internal Control: No report is required if no significant internal control deficiencies are identified within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.



II. APPLICABILITY

A. All licensed insurers in State of Delaware.

III. AUDIT REPORT






C. Exemptions




D. Extensions


DELAWARE NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS


E. Consolidated or Combined Audits























A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS DIST. OF COLUMBIA

DISTRICT OF COLUMBIA SUMMARY OUTLINE

District of Columbia Insurance Statutes Title 31, Chapter 3






E. Internal Control Letter: No report is required if no significant internal control deficiencies are identified. Within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.

F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify the Mayor of the District of Columbia within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify the Mayor of the District of Columbia within five (5) business days of dismissal or resignation of auditor. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of the financial statements.

II. APPLICABILITY

A. All licensed insurers or those authorized by the Mayor to do business in the District of Columbia.

III. AUDIT REPORT


1. Statutory accounting principles prescribed, or permitted, by the Mayor of the District of Columbia.




C. Exemptions




D. Extensions


DIST. OF COLUMBIA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS





















A. Partner Rotation and Application for Relief




A. Awareness Letter

1. CPA shall furnish insurer with letter to be filed with the District of Columbia Mayor indicating CPA is aware of the provisions of the insurance laws and rules of the District of Columbia. Letter shall also affirm CPA will express his opinion on the financial statements in



terms of conformity with statutory accounting practices prescribed or permitted by the Mayor and specify exceptions.








1. CPA shall report, in writing, within five (5) business days to the board of directors or its audit committee any determination that insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements pursuant to regulations 31-2502.13 and 31-4408.












XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS FLORIDA

FLORIDA SUMMARY OUTLINE

Florida Regulation Title 4, Chapter 4-137



B. Designation of Auditor: By December 31 of the year subject to audit


D. Awareness Letter: By December 31 of the year subject to audit per Florida Office of Insurance Regulation

E. Report on Significant Deficiencies in Internal Controls: June 1 (filed with the annual audited financial report)



II. APPLICABILITY

A. All insurance companies duly authorized by subsisting certificate of authority issued by Florida office of Insurance Regulationt to transact insurance in the State of Florida.

III. AUDIT REPORT






C. Exemptions

1. Same as NAIC Model Audit Rule, although insurer subject to exemption must submit by March 1 following the year to which the exemption applies, an affidavit sworn by an officer of the insurer specifying the amount of direct premiums written in Florida and the number of policyholders or certificateholders.



FLORIDA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

3. Upon written application of any insurer, the Department shall grant an exemption from compliance with the filing of an annual audited financial report received by the Department by March 1 of the year following the calendar year to which the application applies if the Department finds, upon review of the application, that the insurer is under an order of receivership, conservatorship, rehabilitation, or is in another delinquency proceeding by the public insurance supervising official of any state, and the insurer has been granted an exemption from filing an annual audited financial report by its state of domicile. An exemption shall be granted for one year only. Exemptions for future years require additional applications.

D. Extensions

1. Not addressed.




Application for approval to consolidate is required each year and must be filed with the Florida Office of Insurance Regulation prior to the end of the calendar year for which approval is being granted. Application for approval may be accepted after the end of the calendar year subject to imposition of an administrative fine. The amount of the fine shall be $50 per day for each day beyond the calendar year, not to exceed an aggregate amount of $10,000 for the group of insurers requesting to file on a consolidated basis. Approval shall be granted unless such approval prevents the Office of Insurance Regulation from carrying out statutory responsibilities.



1. The insurer shall register with the Department in writing the name and address of the CPA retained to conduct the annual audit by December 31 of the year subject to audit.





Additional qualifications state that CPA must prepare reports, filings, and statements as required by the Florida Insurance Code.
















A. Awareness Letter




1. Insurer shall furnish the Florida Commissioner with a written report prepared by CPA describing significant deficiencies in the insurer’s internal control structure, as well as a description of remedial or proposed action to be taken to correct deficiencies.

2. Report on significant deficiencies in internal controls is to be filed with the annual audited financial report.

3. Not addressed (see #2 above).

















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS GEORGIA

GEORGIA SUMMARY OUTLINE

Georgia Regulations 120 - 2 - 60








G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation of auditor.

II. APPLICABILITY

A. All licensed insurers.

III. AUDIT REPORT






C. Exemptions




D. Extensions



GEORGIA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS
















4. Not addressed.








A. Awareness Letter

















2. Not addressed.

3. Not addressed.





XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS HAWAII

HAWAII SUMMARY OUTLINE

Hawaii Regulations Title 24, Chapter 431, Article 3;Title 24, Chapter 19, & Title 16, Chapter 17

Hawaii Regulation Title 24, Chapter 431 makes reference to the NAIC Annual Statement Instructions and makes specific reference to the filing date required, the designation of the auditor, and the filing of consolidated financial statements. In addition, Hawaii Regulations Title 24, Chapter 431 and Title 16, Chapter 17 address various requirements affecting Hawaii captive insurers. These requirements differ from the NAIC Annual Statement Instructions. Hawaii Department of Insurance practice dictates that the specific requirements relating to captive insurers, presented below, are to be followed.

Regulations 431:3-301 and 431:3-302.5 of the Hawaii Insurance Code state:

“Annually on or before March 1, or such day subsequent thereto as the Commissioner upon request and for cause may specify, the following documents are required to be filed with the Commissioner:

By each insurer, a true statement of its financial condition, transactions, and affairs as of the immediately preceding December 31, shall be filed using the National Association of Insurance Commissioners annual statement blank plus any additional information required by the Commissioner. The annual statement shall be prepared in accordance with the NAIC Annual Statement Instructions, following the practices and procedures prescribed by the NAIC Accounting Practices and Procedures Manuals. The reported information shall be verified by the oaths of at least two of the insurer’s principal officers, or the attorney-in-fact in the case of a reciprocal insurer, or the United States manager in the case of an alien insurer. The statement of an alien insurer shall relate only to its transactions and affairs in the United States.”

“Annually on or before June 1, or such later date as the Commissioner upon request or for cause may specify, each domestic insurer shall file an audit by a designated independent certified public accountant or accounting firm of the financial statements reporting the financial condition and the results of operations of the insurer. The insurer shall notify the Commissioner in writing of the name and address of the person or firm retained to conduct the annual audit within sixty days. The Commissioner may disapprove the insurer’s designation within fifteen days of receipt of the insurer’s notice, and the insurer shall be required to designate another independent certified public accountant or accounting firm.

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool.”

With regard to captive insurers, Hawaii Regulation 431:19-107 states:

“Each captive insurance company other than a class 3 captive insurance company shall submit to the Commissioner a statement of financial condition written according to generally accepted accounting principles, or other comprehensive basis of accounting as may be deemed appropriate by the Commissioner, and audited by an independent certified public accountant, or other qualified professional as deemed appropriate by the commissioner, on or before the last day of the sixth month following the end of the company’s fiscal year.”

A class 3 captive insurance company is an association captive insurance company or a risk retention captive insurance company. Class 3 insurance companies have the same annual statement and audit filing requirements as other licensed insurers.


HAWAII NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

Additionally, Hawaii Regulations Title 16, Chapter 17, Sections 10 and 12 state:

“A captive shall require its certified public accountant to immediately notify the executive officers and board of directors of the captive in writing of any determination by the certified public accountant that the captive has materially misstated its financial condition or that, since its last financial report the captive has experienced results which lead the certified public accountant to the determination that the captive is in adverse financial condition. The captive and its designated captive insurance manager shall notify the Commissioner in writing within five working days of receipt thereof.”

“Each captive shall require its independent certified public accountant to make available for review by the Commissioner or appointed agent the work papers prepared in the conduct of the annual statement and the audit of the captive. The captive shall require that the accountant retain the audit work papers for a period of not less than five years after conclusion of transactions to which they relate.

The review shall be considered to be an investigation and all working papers obtained during the course of that investigation shall be confidential in accordance with the captive insurance code. The captive shall require that the certified public accountant provide photocopies of any and all workpapers that the commissioner deems relevant. These copies may be retained by the insurance division.”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS IDAHO

IDAHO SUMMARY OUTLINE

Idaho Regulation IDAPA 18, Title 1, Chapter 62






E. Report on Significant Deficiencies in Internal Controls: June 1 (filed with audited financial statements)



II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions




D. Extensions



IDAHO NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS
























A. Awareness Letter







2. The Report on Significant Deficiencies in Internal Controls is to be filed with the Audited Financial Report. The insurer is required to provide a description of the remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

3. A “none” report should be issued if the accountant does not identify significant deficiencies.















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ILLINOIS

ILLINOIS SUMMARY OUTLINE

Illinois Regulation Title 50, Chapter 1, Subchapter 1, Part 925






E. Report on Significant Deficiencies in Internal Controls: June 1 (filed with audited financial statements)

F. Notification of Adverse Financial Conditions: CPA must notify the insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify the Director within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify the Director within five (5) business days of dismissal or resignation of auditor. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of the financial statements. In addition, the insurer must notify the Director within thirty (30) days of the date the successor auditor is engaged.

II. APPLICABILITY


III. AUDIT REPORT


1. Statutory accounting practices as described in Section 136 of the Illinois Insurance Code, Section 2-7 of the Health Maintenance Organization Act, or Section 2007 of the Limited Health Service Organization Act, or as otherwise permitted by the insurance regulatory authority of the insurer’s state of domicile.




Additionally, property and casualty insurers shall require the CPA to subject the current “Schedule P - Part 1” - (excluding those amounts related to bulk and IBNR reserves and claim counts) to the auditing procedures applied in the audit of the current statutory financial statements to determine whether Schedule P - Part 1 is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole. It is expected that the auditing procedures applied by the CPA


ILLINOIS NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

to the claim loss and loss adjustment expense data from which Schedule P - Part 1 is prepared would be applied to activity that occurred in the current calendar year.

Life, accident, and health insurers shall require the CPA to subject the information included in the “Supplemental Schedule of Assets and Liabilities” and exhibits thereof to the auditing procedure applied in the audit of the current statutory financial statements to determine whether such information is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole and agrees to the insurer’s annual statement filed with the Department.

C. Exemptions

1. Foreign and alien insurers having direct written premiums of less than $1,000,000 in any calendar year, unless reinsurance assumed premiums exceed $1,000,000.



D. Extensions



























A. Awareness Letter

1. CPA shall furnish insurer with a letter to be filed with the Director indicating CPA is aware of the provisions of the Illinois Insurance Code and/or Health Maintenance Organization Act and the Rules and Regulations of the Department that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department, and specify such exceptions as appropriate.



1. Each insurer shall furnish the Director with a report of evaluation performed by the CPA, in connection with the examination of the accounting procedures of the insurer and its system of internal control.

2. The report shall be filed annually on or before June 1 with the filing of the annual audited financial report. The insurer shall also furnish the Director with a description of remedial actions taken or proposed to correct significant deficiencies.

3. Not addressed, see #1 and #2 above.



1. CPA shall report, in writing, within five (5) business days to the board of directors any determination that the insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of the Illinois Insurance Code and the net worth requirements of the Health Maintenance Organization Act and the Limited Health Service Organization Act.







1. Insurer shall notify the Director within five (5) business days if the CPA is dismissed or resigns. In addition, the insurer shall notify the Department within thirty (30) days of the date the successor CPA is engaged.







XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS INDIANA

INDIANA SUMMARY OUTLINE

Indiana Statutes Title 27, Article 1, Chapter 3.5


A. Audit Report: June 1.


C. Qualification Letter: June 1.


E. Report on Significant Deficiencies in Internal Controls: Within sixty (60) days after filing the annual audited financial statements.


G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation of auditor and provide the identity and address of the new auditor engaged. Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. Domestic, foreign, and alien insurers if exemption criteria is not met.

III. AUDIT REPORT


1. Statutory accounting practices prescribed, or permitted, by the Indiana Department of Insurance.



2. Same as NAIC Model Audit Rule, except that the notes to the financial statements shall be those required by the NAIC Annual Statement Instructions and any other notes required by statutory accounting practices.

C. Exemptions

1. Domestic insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders of directly written policies nationwide at the end of any calendar year shall be exempt.


INDIANA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS



D. Extensions




2. Same as NAIC Model Audit Rule, except that noninsurance operations shall be shown on the schedule on an individual basis.






2. Not addressed.

















A. Awareness Letter

1. CPA shall furnish insurer with letter to be filed with the Commissioner indicating CPA is aware of provisions of IC 27 and the administrative rule of the Indiana Department of Insurance. The letter shall also affirm CPA will express his opinion on the financial statements in terms of conformity with statutory accounting practices prescribed or permitted by the Department and specify exemptions as appropriate.



1. Insurer shall file with the Commissioner a written report describing the significant deficiencies in the insurer’s internal control structure, if internal control deficiencies were noted by the insurer’s CPA.


3. See #1 above.








1. Insurer shall notify Commissioner within five (5) business days if CPA is dismissed or resigns and provide the identity and address of the new CPA.


3. Same as NAIC Model Audit Rule with the additional requirement that the responsive letter shall be furnished to the Commissioner within five (5) business days after receipt from the CPA.







XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS IOWA

IOWA SUMMARY OUTLINE

Iowa Regulation Title 191, Chapter 5







F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition; Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.


II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions




D. Extensions


IOWA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

























A. Awareness Letter

1. CPA shall furnish the insurer with a letter to be filed with the Commissioner indicating that the CPA is aware of the provisions of Title XX of the Iowa Code and administrative rules thereunder that relate to accounting and financial matters and affirming that the CPA will express an opinion on the financial statements in terms of their conformity to the statutory



accounting practices prescribed or otherwise permitted by the Department and specify exceptions.




















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS KANSAS

KANSAS SUMMARY OUTLINE

Kansas Regulation Agency 40, Article 1





D. Awareness Letter: The CPA need only file once prior to the first audit, however a change in auditors would necessitate a new awareness letter – per Department ruling.




II. APPLICABILITY

A. All insurance companies, fraternal benefit societies, mutual nonprofit hospital and medical service corporations, health maintenance organizations or any prepaid service plans operating under articles 19a, 19b or 19d of chapter 40 of the Kansas Statutes.

III. AUDIT REPORT






C. Exemptions




KANSAS NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS


D. Extensions
























Rotation requirements shall commence to accrue with the first audited financial report rendered on and after January 1, 1995.




A. Awareness Letter





















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS KENTUCKY

KENTUCKY SUMMARY OUTLINE

Kentucky Regulation Title 806, Chapter 3








G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All authorized insurers.

III. AUDIT REPORT






C. Exemptions




D. Extensions


KENTUCKY NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

©


C. Consolidated Audits























A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS LOUISIANA

LOUISIANA SUMMARY OUTLINE

Louisiana Statutes Title 22

Title 22 of the Louisiana Statutes state:

“By June first of each year, every admitted insurer in the state shall file an annual financial report for the immediately preceding year ending December thirty-first, audited by a certified public accountant as required by the National Association of Insurance Commissioners, as evidenced by its annual statement instruction handbook. The Commissioner may determine and require that additional information be submitted in the financial report.

The Commissioner shall grant an exemption from the provisions of this Part if: (a) after written application for an exemption submitted by an insurer, the Commissioner determines that compliance with this Part would constitute a financial or organizational hardship on the insurer; or (b) the insurer is a domestic life insurer which does business exclusively in the state of Louisiana, with gross annual premiums totaling $25,000,000 or less and has entered into reinsurance agreements having a net aggregate amount of $5,000,000 or less and has admitted assets of less than $25,000,000. No domestic life insurer under this Subsection that fails to satisfy the financial solvency requirements promulgated by the Department of Insurance shall be exempt from the provisions of this Part, including the submission of annual audited financial statements.

An exemption may be granted, in writing, at any time and from time to time for a specified period or periods.”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENT MAINE

MAINE SUMMARY OUTLINE

Maine Insurance Code 24-A, Section 221-A




C. Qualification Letter: June 1 (with audit report)

D. Awareness Letter: Not addressed.

E. Internal Control Letter: June 1 (with audit report)

F. Notification of Adverse Financial Conditions: CPA must notify each member of the insurer’s board of directors and the Maine Superintendent of Insurance immediately upon detection of adverse financial condition.

G. Change in Auditors: Not addressed.

II. APPLICABILITY

A. All domestic insurers, except those insurers transacting business pursuant to the terms of Chapter 51 of the Maine Insurance Code. A foreign or alien insurer shall file an audited financial report upon the superintendent’s request.

III. AUDIT REPORT


1. Statutory accounting principles prescribed, or permitted, by the Maine Superintendent of Insurance or the Department of Insurance in state of domicile.


1. Examination shall be conducted in accordance with generally accepted auditing standards.

2. The contents of the audited financial report shall include the following:

a. Report of the Auditor—Opinion shall be on CPA’s letterhead and shall be manually executed and dated.

b. Balance Sheet

c. Statement of Operations

d. Statement of Cash Flows

e. Statement of Changes in Capital Paid-up, Gross Paid-in, and Contributed Surplus and Unassigned Funds and Surplus Funds


MAINE NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

f. Notes to Financial Statements

C. Exemptions

1. Insurers having written premiums in Maine of less than $100,000 in the preceding year is exempt from filing requirements with respect to that year.

2. Not addressed.


D. Extensions

1. Extensions may be granted by the Maine Superintendent.


1. Insurer may apply to Maine Superintendent to file consolidated or combined statements if part of insurance group using pooling or 100% reinsurance.

2. A columnar consolidating or combining worksheet shall be filed with report.

















NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENT MAINE




2. Not addressed.


A. Awareness Letter

1. Not addressed.



1. CPA shall issue a report respecting the evaluation of internal controls.

2. Insurer shall file the report with the annual audited financial report.

3. Not addressed.



1. Insurer shall require CPA to immediately report, in writing, to each member of the Board of Directors of the insurer and the Maine Superintendent upon any determination that the insurer has materially misstated its financial condition as reported in the annual statement required under section 423.

2. Not addressed.

3. Not addressed.



1. Not addressed.

2. Not addressed.

3. Not addressed.






2. Workpapers shall be retained for a period of not less than six (6) years after the period reported on.

XII. OTHER

A. Alien Insurers

1. Not addressed.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MARYLAND

MARYLAND SUMMARY OUTLINE

Maryland Insurance Code, Article 48A, Subtitle 3; Maryland Insurance Code Chapter 58, Section 4


A. Audit Report: March 1 for nonprofit health service plans and managed care organizations, April 1 for dental plan organizations, June 1 for property and causality, life and health, title, health maintenance organizations and fraternal.

B. Designation of Auditor: Same as NAIC Model Audit Rule.

C. Qualifications Letter: Same as NAIC Model Audit Rule.

D. Awareness Letter: Same as NAIC Model Audit Rule.

E. Report on Significant Deficiencies in Internal Controls: Same as NAIC Model Audit Rule.

F. Notification of Adverse Financial Condition: Same as NAIC Model Audit Rule.

G. Change in Auditors: Same as NAIC Model Audit Rule.

II. APPLICABILITY

A. Insurers authorized to do business in Maryland.

III. AUDIT REPORT






C. Exemptions

1. A domestic insurer that is not licensed or authorized to do business in another state.



D. Extensions





MARYLAND NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS






1. In good standing with Maryland State Board of Public Accountancy and the appropriate state board of accountancy of any other State in which the accountant is licensed to practice.
















A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MASSACHUSETTS

MASSACHUSETTS SUMMARY OUTLINE

Massachusetts Insurance Code 211 CMR 23.00





D. Awareness Letter: June 1.

E. Report on Significant Deficiencies in Internal Controls: No report is required if no significant internal control deficiencies are identified. If significant internal control deficiencies are identified, the report shall be filed with the annual audited financial report on June 1.

F. Notification of Adverse Financial Conditions: CPA must notify an officer and the insurer’s board of directors immediately, but no later than five (5) business days of detecting such condition. Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.


II. APPLICABILITY

A. All insurers doing business within the Commonwealth of Massachusetts.

III. AUDIT REPORT


1. Statutory accounting principles prescribed, or permitted, by Massachusetts Department of Insurance.




C. Exemptions

1. Insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of such calendar year, except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more and insurers having both premium written in Massachusetts of $100,000 or more in any year and having 1,000 or more Massachusetts policyholders at the end of the year will not be so exempt.


MASSACHUSETTS NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

2. Not addressed.


D. Extensions




2. Same as NAIC Model Audit Rule, although consolidating statement shall also include an organizational chart of all companies included in the consolidation.





1. Same as NAIC Model Audit Rule, although additional requirement is that CPA is duly licensed to practice in Massachusetts or a state with similar licensing requirements.












A. Partner Rotation and Application or Relief






A. Awareness Letter

1. CPA shall furnish insurer with letter to be filed with the Massachusetts Commissioner indicating CPA is aware of provisions of the Insurance Code and 211 CMR that relate to accounting and financial matters. Letter shall also affirm CPA will express his opinion on the financial statements in terms of conformity with statutory accounting practices prescribed or permitted by Department and specify exceptions.




2. Insurer shall file the Report on Significant Deficiencies for inclusion in the filing of the annual audited financial statements to the Massachusetts Commissioner. Additionally, the insurer is required to provide a description of remedial or proposed action to be taken to correct deficiencies.




1. CPA shall report, in writing, immediately but not later than five (5) business days to an officer and all members of the Board of Directors or the Audit Committee of the insurer, any determination that insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements per the Massachusetts Insurance Code.














XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MICHIGAN

MICHIGAN SUMMARY OUTLINE

Michigan Insurance Law, Chapter 500 - Insurance Code of 1956, Chapter 10






E. Internal Control Letter: No report is required if no significant internal control deficiencies are identified. Within 60 days after filing the annual audited financial statements, where significant internal control deficiencies were identified.


G. Change in Auditors: Insurers must notify Commissioner within five (5) business days of dismissal or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All insurers authorized to do business in State of Michigan.

III. AUDIT REPORT


1. Statutory accounting principles prescribed, or permitted, by Michigan Commissioner.




C. Exemptions

1. Insurers having direct premiums written in Michigan of less than $1,000,000 in any year and less than 1,000 policyholders in the State of Michigan at the end of the year.

2. Insurers filing audited financial reports in another state which have been found by the Michigan Commissioner to be substantially similar to the requirements herein, if:


MICHIGAN NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

a. A copy of the Audited Financial Report and the evaluation of accounting procedures and systems of internal control report are filed with the Michigan Commissioner in accordance with Michigan filing dates specified herein.

b. A copy of any notification of adverse financial condition report filed with the other state is filed with the Commissioner within the time specified herein.


Additional exemption listed includes domestic insurers transacting business only in Michigan that have direct premiums of less than $10,000,000 in any year, write or assume reinsurance for only property-based coverage, and are not part of an insurance holding company system whose members have total direct written premiums of more than $10,000,000 in any year.

D. Extensions



























A. Awareness Letter









1. CPA shall report, in writing, within five (5) business days to the Board of Directors or the Audit Committee of the insurer, any determination that insurer has materially misstated its financial condition or does not meet the requirements of section 408 or 410 of the Michigan Insurance Code.













2. Workpapers shall be retained for a period of not less than five (5) years after the period reported on.

XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MINNESOTA

MINNESOTA SUMMARY OUTLINE

Minnesota Statutes, Chapter 60A.129









II. APPLICABILITY

A. All insurers doing business in Minnesota, including fraternal benefit societies, reciprocal exchanges, service plan corporations licensed pursuant to Ch. 62C, and legal service plans licensed pursuant to Ch. 62G.

III. AUDIT REPORT





2. Same as the NAIC Model Audit Rule with the additional requirement that the audit report of the independent certified public accountant that performs the audit of an insurer’s annual statement as required under paragraph (a), shall contain a statement as to whether anything, in connection with the audit, came to the accountant’s attention that caused the accountant to believe that the insurer failed to adopt and consistently apply the valuation procedures as required by sections 60A.122 and 60A.123 of the Minnesota statutes.

C. Exemptions


MINNESOTA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS




D. Extensions






















1. Same as NAIC Model Audit Rule for calendar year 1997 and thereafter.





A. Awareness Letter





















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MISSISSIPPI

MISSISSIPPI SUMMARY OUTLINE

Mississippi Insurance Laws Title 83, Chapter 5






E. Report on Significant Deficiencies in Internal Controls: No report is required if no significant internal deficiencies are identified within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.



II. APPLICABILITY

A. All insurers

III. AUDIT REPORT


1. Statutory accounting principles prescribed, or permitted, by Mississippi Department of Insurance.



2. Same as NAIC Model Audit Rule except that the notes to the financial statements shall be those required by generally accepted accounting principles and shall include a reconciliation between the audited statutory financial statements and the annual statement with a written description of differences. The notes shall also include a narrative explanation of all significant inter-company transactions and balances. In addition, the audited financial report shall contain any supplementary information which the Commissioner may require.

C. Exemptions



MISSISSIPPI NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

2. Not addressed.


D. Extensions



























A. Awareness Letter

1. The insurer shall obtain a letter from the CPA, and file a copy with the Commissioner stating that the CPA is aware of the provisions of the insurance code and the rules and regulations of the Department of Insurance that relate to accounting and financial matters and affirming that CPA will express opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department, specifying such exceptions as appropriate.








1. CPA shall report, in writing, within five (5) business days to the Board of Directors, any determination that the insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements per the Mississippi Insurance Code.











2. Workpapers shall be retained until the Insurance Department files a Report on Examination covering the period of the audit.



XII. OTHER

A. Alien Insurers

1. Not addressed.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MISSOURI

MISSOURI SUMMARY OUTLINE

Missouri Statutes Title XXIV, Chapter 375; Title 20, Division 200, Chapter 1.150 (1), (2) & (3) - (Section (3) Effective 2/15/96)





D. Awareness Letter: Within sixty (60) days after becoming subject to this regulation


F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify Director within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify Director within five (5) business days of dismissal or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All certified or authorized insurers.

III. AUDIT REPORT





2. Same as NAIC Model Audit Rule except that the notes to the financial statements shall also include a narrative explanation of all significant inter-company transactions or balances.

C. Exemptions

1. Not addressed, although Missouri Department practice dictates that items not addressed in the specific Missouri statutes shall follow the NAIC Model Audit Rule.

2. Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement for audited financial reports which are found by the director to be


MISSOURI NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

substantially similar to the requirements herein, are exempt from sections 375.1025 to 375.1062:

a. A copy of the audited financial report and the evaluation of accounting procedures and systems of internal control report which are filed with such other state are filed with the Director in accordance with the filing dates specified herein;

b. A copy of any notification of adverse financial condition report filed with such other state is filed with the director within the time specified herein.


D. Extensions

1. Extensions may be granted by the Director for thirty (30) day periods. The request for extension must be submitted in writing and received by the Department not less than twenty (20) days prior to June 1.





















An additional qualification which must be included in the letter is that the CPA has liability insurance coverage of the lessor of $1,000,000 or 10% of the insurer’s admitted assets.






A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MONTANA

MONTANA SUMMARY OUTLINE

Montana Regulation Title 6, Chapter 6, Subchapter 35







F. Notification of Adverse Financial Conditions: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify commissioner within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner on matters related to the presentation of financial statements.

II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions


2. Same as NAIC Model Audit Rule. However, the state of Montana has issued a department directive that foreign insurers are not required to submit an audited report unless they get a specific request from the Montana Commissioner of Insurance to do so.


D. Extensions


MONTANA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

























A. Awareness Letter

1. The insurer shall obtain a letter from the CPA, and file a copy with the commissioner, stating that the CPA is aware of the provisions of Title 33, MCA, and the administrative rules of the Department that relate to accounting and financial matters, and affirming that he will express his opinion on the financial statements in terms of their conformity with the statutory



accounting practices prescribed or otherwise permitted by that department, specifying such exceptions as appropriate.


A. Report on Internal Control






1. CPA shall report, in writing, within five (5) business days to the board of directors or its audit committee any determination that the insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of 33-2-109, 33-2-110, 33-4-401, 33-5-401, 33-30-201, and 33-31-216(9), MCA.












XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE AND STATE AUDIT REQUIREMENTS NEBRASKA

NEBRASKA SUMMARY OUTLINE

Nebraska Administrative Rules and Regulations, Title 210, Chapter 56



B. Designation of Auditor: Within sixty (60) days after becoming subject to the state’s annual audit requirement

C. Qualification Letter: June 1 (with audit report)

D. Awareness Letter: Due date not specified


F. Notification of Adverse Financial Condition: Due date not specified for notifying insurer of such condition. Insurer must notify Director within five (5) days of its notice.

G. Change in Auditors: Insurer must notify Director within five (5) days of dismissal or resignation; Within ten (10) days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All licensed traditional insurers, including reciprocals, fraternal benefits and health maintenance organizations and assessment companies, except for assessment associations subject to Nebraska Revised Statute 44-801.

III. AUDIT REPORT






C. Exemptions

1. Foreign or alien insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be exempt.


NEBRASKA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS



D. Extensions

























NAIC GUIDE TO COMPLIANCE AND STATE AUDIT REQUIREMENTS NEBRASKA


A. Awareness Letter





















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEVADA

NEVADA SUMMARY OUTLINE

Nevada Revised Statutes, Title 57, Chapter 680A


A. Audit Report: June 1 (commissioner may request report earlier with 90 days notice)


C. Qualifications Letter: Not specified




G. Change in Auditors: Insurer must notify commissioner within five (5) business days of dismissal or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. Insurers licensed to do business in Nevada.

III. AUDIT REPORT






C. Exemptions



3. Not addressed.

D. Extensions


NEVADA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

























A. Awareness Letter






















2. The CPA shall retain the workpapers and communications pertaining to its audit of the financial statements of an insurer until the insurance division has completed its examination of the annual audited financial report, but not longer than seven (7) years.

XII. OTHER

A. Alien Insurers

1. An insurer domiciled in Canada may submit the accountant’s report which was filed with the Canadian Dominion Department of Insurance.

2. Not specified.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEW HAMPSHIRE

NEW HAMPSHIRE SUMMARY OUTLINE

New Hampshire Statutes Title 37, Chapter 400-A:36

Chapter 400-A:36 (Annual financial statement) of the New Hampshire Statutes states in part:

“Every insurance company doing business in this state shall, on or before March 1 each year, make and transmit to the commissioner a statement under oath of its president and secretary, in accordance with the NAIC Annual Statement Blank...”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEW JERSEY

NEW JERSEY SUMMARY OUTLINE

New Jersey Administrative Code, Title 11, Chapter 2



B. Designation of Auditor: Within sixty (60) days after becoming subject to the state’s annual audit requirement

C. Qualifications Letter: June 1



F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) days of detecting such condition. Insurer must notify commissioner within five (5) days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify commissioner within five (5) days of dismissal or resignation of auditor; Within ten (10) days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions


2. Insurers filing audited financial reports in another state, pursuant to such other state’s requirements of audited financial reports which have been found by the Commissioner to be substantially similar to New Jersey’s requirements, are exempt from this rule if:


NEW JERSEY NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

a) A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant's Letter of Qualifications are filed with the state insurance commissioner in accordance with filing dates specified in the New Jersey Insurance Code;

b) A copy of any Notification of Adverse Financial Condition Report is filed within the Commissioner within five (5) days of the insurer’s board of directors’ notification.


D. Extensions



























A. Awareness Letter




















2. Workpapers shall be retained until insurance department files a Report on Examination covering the period of the audit, but no longer than ten (10) years from the date of the audit report.

XII. OTHER

A. Alien Insurers



1. Alien insurers are required to file an annual statement of total business, duly audited by an independent or similarly certified accountant, on the form prescribed by such insurer’s domiciliary supervisor.

2. Alien insurers required to file an awareness letter.

B. Confidentiality of Documents

1. All documents submitted to the commissioner pursuant to New Jersey’s annual audit rule are confidential and not public documents as defined in New Jersey’s Public Records Act, N.J.S.A. 47:1A-1 et. seq.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEW MEXICO

NEW MEXICO SUMMARY OUTLINE

New Mexico Regulations Title 13, Chapter 2, Part 5




C. Qualifications Letter: June 1 (with audit report).



F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify superintendent within five (5) days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify superintendent within five (5) business days of dismissal or resignation of auditor; Within ten (10) days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions




D. Extensions


NEW MEXICO NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS






















1. After January 1, 1996, no partner rendering a report may act in that capacity for more than seven (7) consecutive years. After seventh year, partner cannot act in this capacity for the company or its affiliates or subsidiaries for two (2) years.



A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEW YORK

NEW YORK SUMMARY OUTLINE

New York Insurance Law section 307(b) New York Administrative Code, Regulation 118


A. Audit Report: May 31

B. Designation of Auditor: Not addressed.

C. Qualifications Letter: Written contract (see section V below) filed prior to first year engagement.


E. Report on Significant Deficiencies in Internal Controls: May 31, with audit report.

F. Notification of Adverse Financial Condition: CPA is required to notify the Superintendent, in writing, within fifteen (15) days of determining such condition.


II. APPLICABILITY

A. All licensed or authorized insurers

III. AUDIT REPORT


1. Statutory accounting prescribed, or permitted, by the New York Superintendent; or, generally accepted accounting principles, provided that an appropriate reconciliation is made of the differences between net income and capital and surplus reported on that basis and the amounts reported in the annual statutory statement filed with the Superintendent.


1. Not addressed.

2. Not addressed.

C. Exemptions

1. Assessment co-operative property/casualty insurance company having direct premiums written in this state of less than $250,000 in any calendar year and having less than 500 policyholders or reinsurance contract holders at the end of such calendar year shall, in lieu of the required filing, submit an affidavit sworn to by a responsible officer of the insurer specifying the amount of direct premiums written in New York State and number of policyholders or reinsurance contract holders.

2. Superintendent may accept copies of filings of audited financial statements required by another statement where they are found to be substantially similar to the requirements herein.


NEW YORK NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

3. Same as NAIC Model Audit Rule. Exception must be filed with the Department prior to the end of the calendar year for which the exemption is requested.

D. Extensions

1. New York Superintendent may grant hardship extension.



2. Consolidating or combining exhibit shall be filed that clearly reconciles amounts in the audited financial statement to the individual company annual statements.


A. Designation of Auditor

1. Not addressed.


1. Not addressed.

2. Not addressed.

3. Not addressed.


A. Qualification Letter/Contract (shall include the following provisions):

CPA shall agree by written contract with the insurer to comply with the provisions of section 307(b) of the Insurance Law. Such contract must specify that:

(i) on or before May 31st, the CPA shall provide an audited financial statement and opinion for the prior calendar year and an evaluation of the insurer's accounting procedures and internal control systems as are necessary to the furnishing of the opinion;

(ii) any determination by the CPA that the insurer has materially misstated its financial condition as reported to the superintendent or that the insurer does not meet minimum capital and surplus requirements set forth in the Insurance Law shall be given by the CPA, in writing, to the superintendent within fifteen (15) calendar days following such determination; and

(iii) the workpapers and any communications between the CPA and the insurer relating to the audit of the insurer shall be made available for review by the superintendent at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the superintendent. The CPA must retain for review such workpapers and communications for six calendar years from its creation or until after the filing of the report on examination which the record was subject to review, whichever is longer.





1. Not addressed.

2. Not addressed.


A. Awareness Letter

1. Not addressed.



1. The CPA must report on the evaluation of the accounting procedures and the insurer’s system of internal control. Report form not specified.

2. Report must be filed with audited financial report by May 31.

3. Not addressed.



1. CPA shall report, in writing, within 15 calendar days any determination by the CPA that the insurer has materially misstated its financial condition as reported to the Superintendent or that the insurer does not meet the minimum capital or surplus to policyholder requirements set forth in the Insurance Law.

2. See #1 above.

3. See #1 above.



1. Not addressed.

2. Not addressed.

3. Not addressed.






2. Workpapers must be retained for six calendar years from its creation or until after the filing of the report of examination, which the record was subject to review, whichever is longer.

XII. OTHER

A. Alien Insurers

1. Not addressed.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NORTH CAROLINA

NORTH CAROLINA SUMMARY OUTLINE

North Carolina Administrative Code, Title 11


A. Audit Report: May 10

B. Designation of Auditor: Within sixty (60) days after becoming subject to the state’s annual audit regulation or October 1, whichever is later.

C. Accountants Appointment Letter, prepared by the CPA and addressed to the Insurer, contains information formally included in the Qualification Letter and the Awareness Letter. Must be submitted by the Insurer to the Department at the same time the Designation of Auditor Letter is filed.

D. Report on Significant Deficiencies in Internal Controls: May 10 (filed with audit report).

E. Notification of Adverse Financial Condition: CPA must notify an executive officer and all of the insurer’s board of directors immediately upon detecting such condition. Insurer must notify Commissioner within five (5) days of receiving such notification from its independent auditor.

F. Change in Auditors: Insurer must notify Commissioner within thirty (30) days of newly engaged CPA and, at the same time, provide the Commissioner with a letter disclosing disagreements with the former auditor on matters related to the presentation of the financial statements.

II. APPLICABILITY


III. AUDIT REPORT


1. Statutory accounting practices prescribed, or otherwise permitted, by the Department.



2. Same as NAIC Model Audit Rule, except that the notes shall be those required by the annual statement and the appropriate notes under generally accepted accounting principles and shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement with a written description of the nature of these differences; and a narrative explanation of all significant intercompany transactions and balances.

C. Exemptions

1. Insurers having direct premiums written in North Carolina of less than $250,000 in any calendar year and less than 500 policyholders in North Carolina at the end of such calendar year shall be exempt from this rule for the year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory


NORTH CAROLINA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

responsibilities. Insurers must notify the Department on or before March 1 of each year of their exempt status.

2. Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirements, are exempt from this rule if:

a. A copy of the Audited Financial Report and Report on Internal Control Structure Related Matters noted in an audit are filed with such other state;

b. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified by such other state.


D. Extensions

1. Extensions may be granted by the Commissioner for up to forty-five (45) days. The request for extension must be submitted in writing and received by the insurance department not less than fifteen (15) days prior to May 10.


1. Insurer may apply for approval to file audited consolidated financial statements.

2. Columnar consolidating worksheets are to be included in the filing, showing each company separately, and including a listing and description of intercompany eliminations.



1. Name and address of CPA shall be registered with the Commissioner within sixty (60) days after becoming subject to this requirement.




3. The Department may reject the CPA if the CPA does not meet Department requirements.




2. Evidence of CPA expertise in areas of insurance auditing and insurance accounting, including expertise by staff assigned to the audit.



The CPA may be deemed to be experienced in the areas of insurance auditing and accounting if the office filing with the Department pursuant to this Section has existing audit clients in the insurance industry. The staff assigned to an audit pursuant to this Section may be deemed to be experienced in the areas of insurance auditing and accounting as follows: (1) Managerial staff that has been assigned or has had responsibility for audit engagements in the insurance industry in an amount averaging at least 30 percent of their chargeable time during the last three years. (2) Non-managerial staff that has been assigned or has had responsibility for audit engagements in the insurance industry in an amount averaging at least 15 percent of their chargeable time during the last three years or during their period of employment if employed less than three years.

An audit performed by a CPA pursuant to this section shall be staffed by managerial staff experienced in the areas of insurance auditing and accounting and by majority or equal non managerial staff experienced in the areas of insurance auditing and accounting.

3. Not addressed.


5. CPA is a member in good standing with the AICPA and in all states in which the CPA is licensed to practice.







A. Awareness Letter

1. The insurer shall obtain a letter from the CPA, and file a copy with the Commissioner stating that the CPA is aware of the provisions of the North Carolina General Statutes and Administrative Code that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department, specifying exceptions as appropriate. In addition, the CPA must affirm that he is aware of and will comply with the workpaper provisions (see section XI below).



1. The CPA shall report on the evaluation of the accounting procedures and the insurer’s system of internal control. Such report shall follow the Form for Reports on Internal Control Structure Related Matters Noted in an Audit described in Volume 1, Section AU 325, of the Professional Standards of the American Institute of Certified Public Accountants.



2. In addition to the annual audit report, each insurer is required to furnish the Commissioner with two copies of the report, as well as a description of remedial or proposed action to be taken to correct any deficiencies.

3. Not addressed.



1. CPA is required to immediately notify, in writing, an executive officer of the insurer and all its board of directors that the insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of North Carolina.

2. Insurer has five (5) business days from receipt of report to forward a copy to the Commissioner.

3. Not addressed.



1. Insurer shall notify Commissioner within thirty (30) days of newly engaged CPA.

2. Insurer shall also furnish Commissioner with separate letter stating any disagreements with CPA in preceding twenty-four (24) months involving accounting principles or practices, financial statement disclosure, or audit scope or procedure.






XII. OTHER

A. Alien Insurers

1. Not addressed.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIRMENTS NORTH DAKOTA

NORTH DAKOTA SUMMARY OUTLINE

North Dakota Administrative Code Title 45, Article 03, Chapter 20




C. Qualifications Letter: June 1 (Included in the Annual Audited Financial Report).





II. APPLICABILITY

A. All licensed insurers except for a company licensed only in North Dakota.

III. AUDIT REPORT






C. Exemptions




D. Extensions


NORTH DAKOTA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

1. Same as NAIC Model Audit Rule
























A. Awareness Letter



NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIRMENTS NORTH DAKOTA




















XII. OTHER

A. Alien Insurers

1. Alien insurers are subject to the same filing and exemption requirements as those established for foreign insurers.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS OHIO

OHIO SUMMARY OUTLINE

Ohio Administrative Code, Title 3901-1, Rule 50




C. Qualifications Letter: June 1 (with audit report).


E. Report on Significant Deficiencies in Internal Controls: No report is required if no significant internal control deficiencies are identified; Within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.

F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify commissioner within five (5) days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify commissioner within five (5) days of dismissal or resignation of auditor; Within ten (10) days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

H. Communications with Audit Committees: Pursuant to SAS No. 61, each insurer shall require the CPA to prepare such report even if the insurer does not have an audit committee or a group equivalent to an audit committee. This written report shall be filed annually by the insurer with the filing of the annual audit report. (Department Directive)

II. APPLICABILITY

A. A licensed insurer defined in Chapter 1738 (health care corporations); 3907 (domestic life companies); 3909 (foreign life companies); 3911 (domestic and foreign life companies); 3925 (domestic property and casualty companies); 3929 (foreign property and casualty companies); 3953 (domestic and foreign title companies).

III. AUDIT REPORT





2. Same as NAIC Model Audit Rule, expect notes to financial statements shall also include a narrative explanation of all significant intercompany transactions and balances.


OHIO NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

C. Exemptions




D. Extensions






















1. Same as NAIC Model Audit Rule except requirement becomes effective for years beginning after Dec. 31, 1992.





A. Awareness Letter





















XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS OKLAHOMA

OKLAHOMA SUMMARY OUTLINE

Oklahoma Statutes, Title 36, Section 311(A)

Section 311 (Insurers: annual reports; certificates of authority), Subsection A, of the Oklahoma Statutes states in part:

“Each insurer authorized to do business under the provisions of this Code shall, annually, on or before the first day of March, file in the office of the Insurance Commissioner and with the National Association of Insurance Commissioners (NAIC), statements which shall exhibit its financial condition on the thirty-first day of December of the previous year and its business of that year Annual statements shall be filed with the NAIC by diskette or electronically as approved by the NAIC, along with applicable fees. The statements shall be in such general form and context as approved by the NAIC for the kinds of insurance to be reported upon, and as supplemented for additional information required by the Insurance Commissioner by rule. In addition, the statements shall be prepared in accordance with the NAIC Annual Statement Instruction handbooks, including any supplemental filings described in the NAIC Annual Instruction handbook and follow the accounting procedures and practices prescribed by the NAIC Accounting Practices and Procedure Manuals….”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS OREGON

OREGON SUMMARY OUTLINE

Oregon Administrative Rules, Chapter 836, Division 11



B. Designation of Auditor: Not specified for recurring auditor; Within 30 days of the effective date of engagement letter, where a change independent auditor occurs.




F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) days of detecting such condition; Insurer must notify director within five (5) days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify director within five (5) business days of dismissal or resignation of auditor; The insurer must disclose, in a letter to the Commissioner, disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions




D. Extensions


OREGON NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS







1. An insurer is required to notify the Director within 30 days of the designation of a new independent auditor (i.e., an independent auditor who did not prepare the previous year’s audited financial report).















1. Same as NAIC Model Audit Rule except requirement becomes effective for years beginning after December 31, 1993. The period of seven consecutive years includes consecutive years immediately preceding January 1, 1994.



A. Awareness Letter


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS OREGON


B. Report on Internal Controls























XII. OTHER

A. Alien Insurers



NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS PENNSYLVANIA

PENNSYLVANIA SUMMARY OUTLINE

Pennsylvania Regulations, Chapter 147








G. Change in Auditors: Insurer must notify commissioner within five (5) business days of dismissal, replacement or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All insurance companies, associations, exchanges, reciprocals or interinsurance exchanges, the Pennsylvania Inspection Bureau, the Pennsylvania Industry Placement Facility, the Fair Plan coming under the Pennsylvania Fair Plan Act, hospital plan corporations, professional health services plan corporations, fraternal benefit societies, beneficial associations and any other person, corporation, company, partnership, association, or other entity acting as an insurer which is licensed or transacting insurance business in the state.

III. AUDIT REPORT






C. Exemptions

1. Foreign or alien insurers having direct premiums written in Pennsylvania of less than $1 million in a calendar year and having fewer than 1,000 policyholders or certificateholders of


PENNSYLVANIA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

directly written policies in Pennsylvania at the end of that calendar year are exempt from this requirement for that year. Foreign insurers having assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1 million or more are not exempt.

Domestic insurers having total admitted assets less than $10 million, direct premium written nationwide less than $1 million in a calendar year and having fewer than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of that calendar year are exempt from this requirement for that year. Domestic insurers having total admitted assets greater than $10 million or assumed premiums pursuant to contracts or treaties, or both, of reinsurance of $1 million or more are not exempt.

Insurers domiciled in Pennsylvania and not transacting the business of insurance outside of Pennsylvania having total admitted assets less than $10 million and either direct premium written of less than $1 million in a calendar year or fewer than 1,000 policyholders or certificateholders of directly written policies at the end of that calendar year are exempt from this requirement for that year. Insurers having total admitted assets greater than $10 million or assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1 million or more are not exempt.



D. Extensions
























1. Same as NAIC Model Audit Rule except requirement becomes effective for years beginning after Nov. 11, 1997.



A. Awareness Letter












4. The engagement letter must expressly state that the CPA is not liable in any manner to the insurer for a statement made regarding the insurer’s adverse condition.












XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS PUERTO RICO

PUERTO RICO SUMMARY OUTLINE

Rule XIV-A



B. Designation of Auditor: Within thirty (30) days after becoming subject to this rule.



E. Report on Evaluation of Accounting Procedures and System of Internal Control: June 30.

F. Notification of Adverse Financial Condition: CPA must notify the board of directors of the insurer immediately upon determination of such condition; Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify Commissioner within thirty (30) days of dismissal or resignation of auditor; Such notification must include a letter disclosing any disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. Domestic insurers only.

III. AUDIT REPORT


1. Same as NAIC Model Audit Rule; or

2. Generally accepted accounting principles, provided that appropriate reconciliation is made of the differences between net income and capital and surplus reported on that basis and that reported in the annual statutory statement filed with the Commissioner.


1. Examination shall be conducted in accordance with generally accepted auditing standards as determined by the College of CPA’s of Puerto Rico.

2. Same as NAIC Model Audit Rule, except that notes shall be those required by GAAP and shall also include a narrative explanation of all significant intercompany transactions and balances.

C. Exemptions

1. Domestic insurers having premiums written in Puerto Rico of less than $100,000 in any year or that have less than 1,000 policyholders at the end of any year, are exempt from complying


PUERTO RICO NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

with this rule for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities).

2. Rule applies to domestic insurers only.


D. Extensions

1. Same as NAIC Model Audit Rule except the request for extension must be submitted in writing and received by the insurance department not less than ten days prior to June 30.


1. Not addressed.

2. Not addressed.



1. Name and address of CPA shall be registered with the Commissioner within thirty (30) days after becoming subject to this rule.


1. In good standing under the laws of Puerto Rico, and/or the College of Certified Public Accountants of Puerto Rico.


3. Not addressed.







5. CPA is licensed by an appropriate state authority and is a member of the College of Certified Public Accountants of Puerto Rico.






1. Not addressed.

2. Not addressed.


A. Awareness Letter

1. Not addressed.



1. Pursuant to the AICPA’s Professional Standards, AU Section 642, Reporting on Internal Accounting Control, the CPA shall report on his or her evaluation of the insurer’s accounting procedures and system of internal control as part of the audit.

2. Internal control report is to be filed with audit report by June 30.

3. See 1 and 2 under this section.



1. CPA must notify, in writing, an officer and all members of the board of directors of the insurer immediately upon determining that the insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of Puerto Rico.

2. Insurer has five (5) business days from receipt of report to forward a copy to the Commissioner.

3. Not addressed.



1. Insurer shall notify Commissioner within thirty (30) days if CPA is dismissed or resigns.

2. Insurer shall furnish Commissioner with separate letter stating any disagreements with the CPA in preceding twenty-four (24) months involving accounting principles or practices, financial statement disclosure, or audit scope or procedure.

3. Insurer shall also request CPA to furnish letter stating whether the CPA agrees with insurer’s letter to the Commissioner. CPA’s responsive letter shall be furnished to the Commissioner.



1. Workpapers must be made available, through the insurer, for review by insurance department examiners.



2. Workpapers must be retained at least five (5) years from the date of the audit report.

XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS RHODE ISLAND

RHODE ISLAND SUMMARY OUTLINE

Regulation 87




C. Qualifications Letter: June 1 (Included in the Annual Audited Financial Report).



F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition; Insurer must notify commissioner within five (5) business days of the board of directors’ notification.


II. APPLICABILITY

A. Every insurer; including, but not limited to, entities engaged in the business of insurance in accordance with RIGL Chapter 27, and such other entities, including surplus lines insurers, authorized to transact the business of insurance in the State.

III. AUDIT REPORT






C. Exemptions





RHODE ISLAND NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

D. Extensions

























A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS SOUTH CAROLINA

SOUTH CAROLINA SUMMARY OUTLINE

South Carolina Statutes, Title 38, Chapter 13

Chapter 13, section 80 of Title 38 (Annual financial statement) of the South Carolina Statutes states in part:

“Every insurer annually shall file with the Department by March first, in the form and detail the Director or his designee prescribes, a statement showing the business standing and financial condition of the insurer on December thirty-first of the preceding year.... This statement must conform substantially to the form of statement adopted by the National Association of Insurance Commissioners. Unless the director or his designee provides otherwise, the annual statement is to be prepared in accordance with the Annual Statement Instructions and the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners.”


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS SOUTH DAKOTA

SOUTH DAKOTA SUMMARY OUTLINE

South Dakota Statutes, Title 58, Chapter 58-43



B. Designation of Auditor: At least six (6) months prior to filing first audit report.




F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition; Insurer must notify Director within five (5) business days of the board of directors’ notification.

G. Change in Auditors: Insurer must notify Director within five (5) business days of dismissal or resignation of auditor; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions




D. Extensions


SOUTH DAKOTA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS







1. Insurers must notify the Director in writing of the name and address of the CPA not less than six months before the date when the first audit report is to be filed.


















A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS TENNESSEE

TENNESSEE SUMMARY OUTLINE

Tennessee Administrative Rules, Chapter 0780-1-65









II. APPLICABILITY


III. AUDIT REPORT






C. Exemptions




D. Extensions


TENNESSEE NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS






















1. Same as NAIC Model Audit Rule except requirement becomes effective for years beginning after Dec. 31, 1997.



A. Awareness Letter























XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS TEXAS

TEXAS SUMMARY OUTLINE

Texas Insurance Code, Chapter 1, Article 1.15A



B. Designation of Auditor: Not later than December 31 of the calendar year to be covered by the audited financial report.

C. Qualification Letter: June 30 (with audit report).

D. Awareness Letter: Not later than December 31 of the calendar year to be covered by the audited financial report (with designation of auditor letter).

E. Report on Significant Deficiencies in Internal Controls: Within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified.

F. Notification of Adverse Financial Condition: CPA shall immediately notify the insurer’s board of directors upon detecting such condition. Insurer must notify Commissioner within five (5) business days of its notice.

G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All authorized insurers including life, health, and accident insurance companies, fire and marine companies, general casualty companies, title insurance companies, fraternal benefit societies, mutual life insurance companies, local mutual aid associations, statewide mutual assessment companies, mutual insurance companies other than life, farm mutual insurance companies, county mutual insurance companies, Lloyd's plans, reciprocal and interinsurance exchanges, group hospital service corporations, health maintenance organizations, stipulated premium insurance companies, and nonprofit legal services corporations.

III. AUDIT REPORT






C. Exemptions


TEXAS NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

1. Insurers having less than $1,000,000 in direct premiums written in Texas during a calendar year, in lieu of the annual examination required by this article for that calendar year, may submit an affidavit under oath of an officer of the insurer that specifies the amount of direct premiums written in this state, and such insurer shall be exempt from the audit required by this article except that the Commissioner may require an insurer that is exempt under this section to comply with this article if the Commissioner finds that the insurer's compliance is necessary for the Commissioner to fulfill the commissioner's statutory responsibilities; provided that it shall not apply to any fraternal benefit society qualifying for exemption under this section which has no direct premiums written in this state for accident and health insurance during a calendar year. Additionally, an insurer that has assumed premiums of $1,000,000 or more under reinsurance agreements is not exempt under this section.



D. Extensions

1. Extensions may be granted by the Commissioner for thirty (30) day periods. The request for extension must be submitted in writing and received by the insurance department not less than ten (10) days preceding the date the report is due to be filed.


1. Same as NAIC Model Audit Rule, except the application for approval must be filed on or before December 31 of the calendar year for which the combined or consolidated audited financial statements are to be filed.




1. Name and address of the CPA shall be registered with the Commissioner not later than December 31 of the calendar year to be covered by the audited financial report.






A. Qualification Letter:














A. Awareness Letter

1. CPA shall furnish the insurer with a letter to be filed with the Commissioner not later than December 31 of the calendar year to be covered by the audited financial report indicating CPA is aware of provisions of the insurance code and rules and regulations of the insurance department of state of domicile. Letter shall also affirm CPA will express his opinion on the financial statements in terms of conformity with statutory accounting practices prescribed or permitted by the department and specify exceptions.





3. Not addressed.



1. CPA shall immediately report, in writing, to the board of directors or its audit committee any determination that insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of its domiciliary state.


3. If such evidence is not received from the insurer within the five (5) business day period, the CPA shall furnish the Commissioner with a copy of the report not later than ten (10) business days after the date on which the CPA notified the insurer.












XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS UTAH

UTAH SUMMARY OUTLINE

RULE R590-147 Utah Statutes, Title 31A, Chapter 4

Title 31A, Chapter 4, Section 113 (Annual reports) of the Utah Statutes states in part:

“The statement shall… be in the general form and provide the information as prescribed by rule of the commissioner. In the absence of a statute providing otherwise, the statement shall be prepared in accordance with the Annual Statement Instructions and the Accounting Practices and Procedures Manual published by the National Association of Insurance Commissioners.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS VERMONT

VERMONT SUMMARY OUTLINE

Vermont Statute, Tile 8, Part 3, Chapter 101, Subchapter 7



B. Designation of Auditor: Not specified.

C. Qualification Letter: Not specified (filed with the designation of auditor letter).

D. Awareness Letter: Separate letter not required - see qualification letter.

E. Report on Significant Deficiencies in Internal Controls: CPA shall report, in writing, to the insurer within sixty (60) days after filing the annual audited financial statements, where significant internal control deficiencies were identified. Insurer must notify the Commissioner within five (5) days of receipt of report.

F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition. Insurer must notify the Commissioner within five (5) days of the board of directors’ notification.


II. APPLICABILITY

A. All insurers licensed to do business in Vermont.

III. AUDIT REPORT


1. Conforms to statutory accounting practices.



2. Same as NAIC Model Audit Rule except that the notes to the financial statements shall be those required by the NAIC Annual Statement Instructions or GAAP. The notes shall include, but are not limited to, a written report reconciling any differences between the audited financial statements and the annual statement and a summary of ownership and the relationships of the insurer with all affiliated companies.

3. The audited financial report shall also include a letter signed by the qualified CPA describing his or her background, experience and qualifications.

C. Exemptions


VERMONT NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

1. Insurers having direct premiums written in this state of less than $250,000 and less than 500 policyholders or certificate holders of directly written policies nationwide at the end of any calendar year are exempt, unless the commissioner finds that the audit is necessary to assure compliance with this title or that the insurer has assumed premiums on contracts or treaties of reinsurance or both of at least $250,000.

2. Foreign or alien insurers filing audited financial reports in another state which have been found by the Commissioner to be substantially similar to the requirements of Vermont may file with the Commissioner a copy of the report filed with the foreign or alien jurisdiction together with any additional reports required of the CPA in lieu of separate compliance with this section. Upon request of the commissioner, a foreign or alien insurer shall file a letter signed by the qualified CPA describing his or her background, experience and qualifications.


D. Extensions

1. The Commissioner may grant an extension of time for filing. The request for extension must be submitted in writing and received by the insurance department not less than ten (10) days prior to June 1.






1. Domestic insurers shall file the name and address of the CPA with the Commissioner. In addition, if the Commissioner determines that a report filed by the foreign or alien insurers are not substantially similar to the requirements for domestic insurers, the foreign or alien insurers shall register the name and address of the CPA with the Commissioner within thirty (30) days of such determination.





An additional qualification is that the CPA be independent with respect to the insurer.



1. See #6 below.



2. Not applicable - see audit report requirements in Section III.B.


4. CPA agrees to make available to the Commissioner for inspection or copying any and all work papers generated in the audit including, but not limited to, procedures followed, tests performed, information obtained, conclusions, planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of documents, schedules or commentaries prepared or obtained by the CPA in the course of examination and agrees to retain the audit work papers until the department has filed a report of examination on the period of the audit, but no longer than seven years from the date of the audit report.

5. See #6 below.


The qualification letter shall also include a statement that the CPA is familiar with the insurance laws of the insurer's state of domicile that relate to accounting and financial matters; and will express his or her opinion on whether the financial statements conform to the statutory accounting practices prescribed or permitted by the department, and specify any exceptions.



1. Partner rendering report limited to that capacity for no more than seven (7) consecutive years. Time period required prior to resumption by partner not addressed.



A. Awareness Letter

1. Not specifically required - see qualification letter requirements.



1. The CPA shall report to the insurer, in writing, any significant deficiencies in internal controls, within sixty (60) days after the filing of the audited financial report.

2. The insurer has five (5) days from receipt of such report to furnish the Commissioner with a copy of the report describing such deficiencies, as well as a description of remedial or proposed action to be taken to correct deficiencies.

3. CPA shall file the report directly with the Commissioner if the CPA fails to receive written evidence that the insurer has provided the Commissioner with the report within ten (10) days of providing report to the board of directors.

4. Not addressed.







3. CPA shall file the report directly with the Commissioner if the CPA fails to receive written evidence that the insurer has provided the Commissioner with the report within ten (10) days of providing report to the board of directors.





3. Not addressed.





XII. OTHER

A. Alien Insurers


2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS VIRGIN ISLANDS

VIRGIN ISLANDS SUMMARY OUTLINE

Virgin Islands Statutes, Title 22, Chapter 9



B. Designation of Auditor: Not addressed.




F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition; Insurer must notify Commissioner within five (5) business days of the board of directors’ notification.


II. APPLICABILITY

A. All authorized insurers licensed to do business in the Virgin Islands.

III. AUDIT REPORT




1. Not addressed.


C. Exemptions



3. Not addressed.

D. Extensions

1. Extensions may be granted by the Commissioner. The request for extension must be submitted in writing not less than thirty (30) days prior to the due date.


VIRGIN ISLANDS NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS


1. Not addressed.

2. Not addressed.



1. Not addressed.



2. Not addressed.















A. Awareness Letter

1. Not addressed.










1. CPA shall report in, in writing, within five (5) business days to the board of directors or its audit committee any determination that the insurer has materially misstated its financial condition or does not meet the minimum capital surplus requirements of Section 451.





1. Not addressed.

2. Not addressed.

3. Not addressed.





XII. OTHER

A. Alien Insurers

1. Same as NAIC Model Audit Rule except that such report shall be filed with the Commissioner on or before the 30th day of September of each year for the immediately preceding calendar year.

2. Not addressed.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS VIRGINIA

VIRGINIA SUMMARY OUTLINE

Virginia Administrative Code, Title 14, Agency 5, Chapter 270


A. Audit Report: Domestic insurers – June 1 for all domestic insurers.

Foreign and alien insurers – June 30 for all foreign or alien companies domiciled or entered through a state in which similar law, regulation, or administrative practice provides for a June 30 filing date.

All others - the earlier of June 30 or the date established by the insurer’s state of domicile or entry for filing similar audited financial reports.

B. Designation of Auditor: Within sixty (60) days after becoming subject to the state’s annual audit requirement.

C. Qualification Letter: Furnished in connection with, and for inclusion in, the filing of the annual Audited Financial Report (see audit report due dates above).

D. Awareness Letter: Within sixty (60) days after becoming subject to the state’s annual audit requirement.


F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition; Insurer must notify the commission within five (5) business days of its notice.

G. Change in Auditors: Insurer must notify the commission within five (5) business days of dismissal or resignation; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All life, accident and health, sickness, and property and casualty insurers licensed to transact business of insurance in Virginia under Chapter 10 of Title 38.2 and all other organizations licensed to do business under any one or more of the following chapters of Title 38.2 of the Code of Virginia, subject to the limitations and/or exemptions as stated in 14VAC 5-2710-10 et seq.: Chapter 11 - Captive Insurers, Chapter 12 - Reciprocal Insurance, Chapter 25 - Mutual Assessment Property and Casualty Insurers, Chapter 26 - Home Protection Companies, Chapter 38 - Cooperative Nonprofit Life Benefit Companies, Chapter 39 - Mutual Assessment Life, Accident and Sickness Insurers, Chapter 40 - Burial Societies, Chapter 41 - Fraternal Benefit Societies, Chapter 42 - Health Services Plans, Chapter 43 - Health Maintenance Organizations, Chapter 44 - Legal Services Plans, Chapter 45 - Dental or Optometric Services Plans, Chapter 46 - Title Insurance.

III. AUDIT REPORT



VIRGINIA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS





C. Exemptions

1. Insurers having direct premiums written of less than $1 million in any calendar year and having less than 1,000 policyholders or certificateholders of directly written policies at the end of such calendar year are exempt from the requirements of this chapter for such year unless the commission deems that compliance with the reporting requirements of this chapter is necessary to establish the financial condition of an insurer. Insurers having assumed premiums of $1 million or more pursuant to contracts and/or treaties of reinsurance will not be so exempt.



D. Extensions

1. Extensions may be granted by the commission for thirty (30) day periods. The request for extension must be submitted in writing and received by the insurance department not less than ten days prior to the due date.


























A. Awareness Letter

1. Same as NAIC Model Audit Rule with the letter required to be filed within sixty (60) days after becoming subject to this requirement.








1. CPA shall report, in writing, within five (5) business days to the board of directors or its audit committee any determination that the insurer has materially misstated its financial condition or does not meet minimum statutory capital and surplus requirements pursuant to Virginia law.














XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS WASHINGTON

WASHINGTON SUMMARY OUTLINE

Washington Regulations, Title 284, Chapter 284.07


A. Audit Report: June 1. File report electronically.





F. Notification of Adverse Financial Condition: CPA must notify insurer’s board of directors within five (5) business days of detecting such condition; Insurer must notify Commissioner within five (5) business days of board of directors’ notification.


II. APPLICABILITY

A. All insurers as set forth in RCW 48.01.050. It also includes health care service contractor registered under chapter 48.44 RCW, health maintenance organizations registered under chapter 48.46 RCW, and fraternal benefit societies registered under chapter 48.36A RCW.

III. AUDIT REPORT






C. Exemptions

1. Insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nation-wide at the end of such calendar year shall be exempt from this rule for such year (unless the commissioner makes a specific finding that compliance is necessary for the commissioner to


WASHINGTON NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.



D. Extensions



























A. Awareness Letter

1. CPA shall furnish the insurer with letter to be filed with the Commissioner indicating CPA is aware of provision of the Washington State Insurance Code, Title 48, and the rules and regulations thereunder that relate to accounting and financial matters. Letter shall also affirm CPA will express his opinion on the financial statements in terms of conformity with statutory accounting practices prescribed or permitted by the Commissioner and specify exceptions.






IX. DIVERSE CONDITION


1. CPA shall report, in writing, within five (5) business days to the board of directors or its audit committee any determination that the insurer has materially misstated its financial condition or does not meet the minimum capital and surplus requirement of the Washington state insurance code.














XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS WEST VIRGINIA

WEST VIRGINIA SUMMARY OUTLINE

West Virginia Statute Chapter 33, Article 33





D. Awareness Letter: Due date not specified.


F. Notification of Adverse Financial Condition: CPA shall immediately notify, in writing, an officer or the Board of Directors of the insurer and the Commissioner of such condition.

G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation; Insurer shall also notify the Commissioner within thirty (30) days of the date the successor auditor is engaged; Within ten (10) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements

II. APPLICABILITY

A. All West Virginia domestic insurers including any domestic stock insurance company, mutual insurance company, reciprocal insurance company, farmers’ mutual fire insurance company, fraternal benefit society, hospital service corporation, medical service corporation, health care corporation, health maintenance organization, captive insurance company or risk retention group and any licensed foreign or alien insurer.

III. AUDIT REPORT






C. Exemptions


WEST VIRGINIA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

1. Companies which qualify for the size exemption from filing an annual audited financial report allowed by the NAIC Annual Statement Instructions may request a hardship exemption pursuant to Code 33-33-13.



D. Extensions



























A. Awareness Letter

1. CPA shall furnish insurer with a letter to be filed with the Commissioner indicating CPA is aware of the provisions of this code and rules that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the commissioner and specifying any exceptions as appropriate.








1. CPA shall immediately notify, in writing, an officer of director of the insurer and the Commissioner any determination that the insurer has materially misstated its financial condition or does not meet minimum capital and surplus requirements of West Virginia or in the case of an insurer not subject to capital and surplus requirement, that the surplus of the insurer is less than $100,000 as of the December 31 immediately preceding.

For purposes of this article material misstatement shall have the meaning prescribed by the professional standards and pronouncements of the American Institute of CPAs: provided, that the CPA shall report a misstatement that overstates the surplus as regards policyholders in single financial statement items by five percent or more, or when taken together with all financial statement items, the surplus as regards policyholders is overstated by ten percent or more.

2. See #1 above.

3. Not addressed.



1. Same as NAIC Model Audit Rule although the insurer shall also notify the Commissioner within thirty (30) days of the date the successor auditor is engaged.









XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS WISCONSIN

WISCONSIN SUMMARY OUTLINE

Wisconsin Administrative Code, Chapter Ins 50, Subchapter I








G. Change in Auditors: Insurer must notify Commissioner within five (5) business days of dismissal or resignation; Within fifteen (15) business days of the insurer’s notice to the commissioner, the insurer must provide a letter disclosing disagreements with the former auditor on matters related to the presentation of financial statements.

II. APPLICABILITY

A. All insurers licensed in Wisconsin.

III. AUDIT REPORT


1. Statutory accounting practices prescribed, or permitted, by department of insurance in state of domicile, or for a domestic insurer, in conformity with accounting practices prescribed or permitted in annual statements filed with the Commissioner, as provided under s. INS 7.02.




C. Exemptions

1. An insurer is not subject to this subchapter for a calendar year in which the insurer has direct premiums written in this state of less than $100,000 and less than 1,000 policyholders or certificate holders of directly written policies in the state at the end of the calendar year; and


WISCONSIN NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

assumed premiums nationwide of less than $1,000,000 under reinsurance contracts or treaties.

2. A foreign or alien insurer is exempt if it complies with another state's requirement to submit audited financial reports and the other state's requirement is found by the commissioner, in writing, to be substantially similar to the requirements of this chapter; and it files audited financial reports with that state's commissioner of insurance or equivalent agency.

A foreign or alien insurer which is exempt from this subchapter shall:

(a) File a copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant's letter of qualifications which are filed with the other state with the commissioner not later than the filing dates specified herein.

(b) File with the commissioner a copy of any notification of adverse financial condition report filed with, or required to be filed with, the other state within the time specified herein.


Additional exemption - An insurer licensed under ch. 612, Stats., if the insurer:

(a) Has direct total written premium for the calendar year, including premiums on nonproperty coverage, of less than $500,000.

(b) Has a net of reinsurance premium to policyholder surplus ratio of less than 3 to 1 as of the December 31 of the year for which an audited financial report is otherwise required.

(c) Is not authorized under its articles of incorporation to do business in more than 8 counties.

(d) Does not engage in the writing of nonproperty coverage unless the nonproperty coverage is 90% reinsured.

D. Extensions











1. Insurers not in good standing with the American Institute of CPA’s and in all states licensed to practice may be ruled as not qualified by the Commissioner.

2. Insurers not conforming to professional standards may be ruled as not qualified by the Commissioner.















A. Awareness Letter





2. Insurer has sixty (60) days after filing of the annual audited financial statements to furnish the Commissioner with a report prepared by the CPA describing any significant deficiencies in the insurer’s internal control structure. The insurer shall also promptly file with the Commissioner a description of remedial or proposed action to be taken if not described in the CPA’s report.








3. If such evidence is not received from the insurer within ten (10) business days, the CPA shall furnish the Commissioner with a copy of the report.




2. Insurer shall furnish Commissioner with separate letter within fifteen (15) business days of notification stating any disagreements with CPA in preceding twenty-four (24) months involving accounting principles or practices, financial statement disclosure, or audit scope or procedure.

3. Insurer shall furnish Commissioner with a letter from the CPA addressed to the insurer within fifteen (15) business days stating whether the CPA agrees with the insurer’s letter to the Commissioner, and if not, why not.





XII. OTHER

A. Alien Insurers




NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS WYOMING

WYOMING SUMMARY OUTLINE

Wyoming Statute Title 26, Chapter 3, Article 3









II. APPLICABILITY

A. Every insurer as defined by W.S. 26-1-102(a)(xvi).

III. AUDIT REPORT




1. Examination shall be conducted in accordance with generally accepted auditing standards.


C. Exemptions

1. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year or less than 1,000 policyholders of directly written policies nationwide at the end of a calendar year shall be exempt unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities; or the insurer has assumed premiums pursuant to contracts or treaties of reinsurance of $1,000,000 or more.


WYOMING NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS



D. Extensions






















1. After April 1, 1996, the partner or other person responsible for rendering report is limited to that capacity for no more than seven (7) consecutive years. After seventh year, the partner cannot act in that capacity for the company or its affiliates or subsidiaries for two (2) years.





A. Awareness Letter




1. Insurer shall furnish Commissioner with a written report prepared by the CPA describing significant deficiencies in the insurer’s internal control structure.







3. Commissioner shall notify CPA of receipt of report. The CPA shall furnish the Commissioner with a copy of the report within five (5) business days after the insurer is required to forward the report to the Commissioner, unless the Commissioner has previously acknowledged receipt of the report from the insurer.










XII. OTHER

A. Alien Insurers




SECTION 3 TEXT OF NAIC AND STATE AUDIT RULES



Section III — This section includes the text of the NAIC Model Audit Rule, as well as the text of each of the various states’ statutes and regulations regarding the audits of insurance company financial statements.



MODEL RULE (REGULATION) REQUIRING ANNUAL AUDITED FINANCIAL REPORTS

Section 1. Authority

This regulation is promulgated by the commissioner of insurance pursuant to Sections [insert applicable sections] of the [insert state] insurance law.

Section 2. Purpose and Scope

The purpose of this regulation is to improve the [insert state] Insurance Department's surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

Every insurer (as defined in Section 3) shall be subject to this regulation. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of the calendar year shall be exempt from this regulation for the year (unless the commissioner makes a specific finding that compliance is necessary for the commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports that has been found by the commissioner to be substantially similar to the requirements herein, are exempt from this regulation if:

A. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications that are filed with the other state are filed with the commissioner in accordance with the filing dates specified in Sections 4, 11 and 12, respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance).

B. A copy of any Notification of Adverse Financial Condition Report filed with the other state is filed with the commissioner within the time specified in Section 10.

This regulation shall not prohibit, preclude or in any way limit the commissioner of insurance from ordering or conducting or performing examinations of insurers under the rules and regulations of the [insert state] Department of Insurance and the practices and procedures of the [insert state] Department of Insurance.

Section 3. Definitions

A. "Accountant" or "independent certified public accountant" means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which he or she is licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

B. “Audited financial report” means and includes those items specified in Section 5 of this regulation.

C. "Indemnification" means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing or other misrepresentations made by the insurer or its representatives.



D. "Insurer" means a licensed insurer as defined in Sections [insert applicable sections] of the [insert state] insurance law or an authorized insurer as defined in Sections [insert applicable sections] of the [insert state] insurance law.

Section 4. Filing and Extensions for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the commissioner on or before June 1 for the year ended December 31 immediately preceding. The commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

Extensions of the June 1 filing date may be granted by the commissioner for thirty-day periods upon a showing by the insurer and its independent certified public accountant of the reasons for requesting an extension and determination by the commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

Section 5. Contents of Annual Audited Financial Report

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

The annual audited financial report shall include the following:

A. Report of independent certified public accountant.

B. Balance sheet reporting admitted assets, liabilities, capital and surplus.

C. Statement of operations.

D. Statement of cash flows.

E. Statement of changes in capital and surplus.

F. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to Section [insert applicable section] of the [insert state] insurance law with a written description of the nature of these differences.

G. The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted).

Section 6. Designation of Independent Certified Public Accountant

Each insurer required by this regulation to file an annual audited financial report must within sixty (60) days after becoming subject to the requirement, register with the commissioner in writing the name and address of the



independent certified public accountant or accounting firm (generally referred to in this regulation as the "accountant") retained to conduct the annual audit set forth in this regulation. Insurers not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the commissioner stating that the accountant is aware of the provisions of the insurance code and the regulations of the insurance department of the state of domicile that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance department, specifying such exceptions as he or she may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the commissioner of this event. The insurer shall also furnish the commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish the responsive letter from the former accountant to the commissioner together with its own.

Section 7. Qualifications of Independent Certified Public Accountant

A. The commissioner shall not recognize a person or firm as a qualified independent certified public accountant if the person or firm:

(1) Is not in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant; or

(2) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.

B. Except as otherwise provided in this regulation, the commissioner shall recognize an independent certified public accountant as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the [insert state] Board of Public Accountancy, or similar code.

C. A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under [cite applicable receivership statute], the mediation or arbitration provisions shall operate at the option of the statutory successor.

D. (1) No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following a period of service the person shall be disqualified from



acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The commissioner may consider the following factors in determining if the relief should be granted:

(a) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(b) Premium volume of the insurer; or

(c) Number of jurisdictions in which the insurer transacts business.

(2) The requirements of this subsection shall become effective two (2) years after the enactment of this regulation.

E. The commissioner shall not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by, a natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 to 1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

F. The commissioner of insurance, as provided in Section [insert applicable section] of the insurance code, may, as provided in [insert applicable citation], hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this regulation and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this regulation.

Section 8. Consolidated or Combined Audits

An insurer may make written application to the commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies that utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet;

B. Amounts for each insurer subject to this section shall be stated separately;

C. Noninsurance operations may be shown on the worksheet on a combined or individual basis;

D. Explanations of consolidating and eliminating entries shall be included; and



E. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

Section 9. Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration shall be given to the procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

Section 10. Notification of Adverse Financial Condition

A. The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the board of directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the [insert state] insurance code as of that date. An insurer that has received a report pursuant to this paragraph shall forward a copy of the report to the commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the commissioner a copy of its report within the next five (5) business days.

B. No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with Subsection A.

C. If the accountant, subsequent to the date of the audited financial report filed pursuant to this regulation, becomes aware of facts that might have affected his or her report, the commissioner notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

Section 11. Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer's internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.



Section 12. Accountant’s Letter of Qualifications

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

A. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the [insert state] Board of Public Accountancy, or similar code;

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

C. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this regulation and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the commissioner, or the commissioner’s designee or appointed agent, the workpapers, as defined in Section 13;

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and

F. A representation that the accountant is in compliance with the requirements of Section 7 of this regulation.

Section 13. Definition, Availability and Maintenance of CPA Workpapers

A. Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant’s examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support the accountant’s opinion.

B. Every insurer required to file an audited financial report pursuant to this regulation, shall require the accountant to make available for review by insurance department examiners, all workpapers prepared in the conduct of the accountant’s examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance department or at any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

C. In the conduct of the aforementioned periodic review by the insurance department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners shall be considered investigations and all



working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the department.

Section 14. Exemptions and Effective Dates

A. Upon written application of any insurer, the commissioner may grant an exemption from compliance with this regulation if the commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this regulation, the insurer may request in writing a hearing on its application for an exemption. The hearing shall be held in accordance with the regulations of the [insert state] Department of Insurance pertaining to administrative hearing procedures.

B. Domestic insurers retaining a certified public accountant on the effective date of this regulation who qualify as independent shall comply with this regulation for the year ending December 31, 20[ ] and each year thereafter unless the commissioner permits otherwise.

C. Domestic insurers not retaining a certified public accountant on the effective date of this regulation who qualifies as independent may meet the following schedule for compliance unless the commissioner permits otherwise.

(1) As of December 31, 20[ ], file with the commissioner:

(a) Report of independent certified public accountant;

(b) Audited balance sheet; and

(c) Notes to audited balance sheet.

(2) For the year ending December 31, 20[ ] and each year thereafter, such insurers shall file with the commissioner all reports required by this regulation.

D. Foreign insurers shall comply with this regulation for the year ending December 31, 20[ ] and each year thereafter, unless the commissioner permits otherwise.

Section 15. Canadian and British Companies

A. In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

B. For such insurers, the letter required in Section 6 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the commissioner pursuant to Section 4 and shall affirm that the opinion expressed is in conformity with those requirements.

Section 16. Severability Provision

If any section or portion of a section of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.



ALABAMA REGULATIONS

Regulations of the Alabama Insurance Department Regulation No. 100 — Requirement for Annual Audited Financial Reports

Regulation No. 100 § 1 Purpose and Scope

A. The purpose of this regulation is to improve the Alabama Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

B. Every insurer (as defined in Section 3) shall be subject to this regulation. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this regulation for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

C. Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this regulation if:

1. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Sections 4, 11 and 12, respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance).

2. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in Section 10.

D. This regulation shall not prohibit, preclude or in any way limit the Commissioner of Insurance from ordering and/or conducting and/or performing examinations of insurers under the rules and regulations of the Alabama Department of Insurance and the practices and procedures of the Alabama Department of Insurance.

Regulation No. 100 § 2 Authority

This regulation is promulgated by the Commissioner of Insurance pursuant to Section 27-2-17, Code of Alabama 1975.

Regulation No. 100 § 3 Definitions

A. “Audited financial report” means and includes those items specified in Section 5 of this regulation.

B. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.



C. “Insurer” means a licensed insurer as defined in Section 27-1-2(2), Code of Alabama 1975, and includes health maintenance organizations and health care service plans.

Regulation No. 100 § 4 Filing and Extensions for Filing of Annual Audited Financial Reports

A. All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

B. Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing and received by the Department not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

Regulation No. 100 § 5 Contents of Annual Audited Financial Report

A. The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

B. The annual Audited Financial Report shall include the following:

1. Report of independent certified public accountant.

2. Balance sheet reporting admitted assets, liabilities, capital and surplus.

3. Statement of operations.

4. Statement of cash flows.

5. Statement of changes in capital and surplus.

6. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

(a) A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Section 27-3-26, Code of Alabama 1975, with a written description of the nature of these differences.

(b) A summary of ownership and relationships of the insurer and all affiliated companies.

7. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which



an insurer is required to file an audited financial report, the comparative data may be omitted.)

Regulation No. 100 § 6 Designation of Independent Certified Public Accountant

A. Each insurer required by this regulation to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this regulation as the “accountant”) retained to conduct the annual audit set forth in this regulation. Insurers not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

B. The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

C. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this Section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

Regulation No. 100 § 7 Qualifications of Independent Certified Public Accountant

A. The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

B. Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Alabama Board of Public Accountancy, or similar code.



C. No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:

1. Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

2. Premium volume of the insurer; or

3. Number of jurisdictions in which the insurer transacts business.

The requirements of this paragraph shall become effective two (2) years after the enactment of this regulation.

D. The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:

1. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

2. Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or

3. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

E. The Commissioner of Insurance may, pursuant to Section 27-2-28, Code of Alabama 1975, and Departmental Regulation 65, hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may determine that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this regulation and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this regulation.

Regulation No. 100 § 8 Consolidated or Combined Audits

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

B. Amounts for each insurer subject to this section shall be stated separately.

C. Noninsurance operations may be shown on the worksheet on a combined or individual basis.

D. Explanations of consolidating and eliminating entries shall be included.



E. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

Regulation No. 100 § 9 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

Regulation No. 100 § 10 Notification of Adverse Financial Condition

A. The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Alabama Insurance Code as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

B. No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.

C. If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this regulation, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

Regulation No. 100 § 11 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.



Regulation No. 100 § 12 Accountant’s Letter of Qualifications


A. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Alabama Board of Public Accountancy, or similar code.

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

C. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this regulation and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Section 13.

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

F. A representation that the accountant is in compliance with the requirements of Section 7 of this regulation.

Regulation No. 100 § 13 Definition, Availability and Maintenance of CPA Workpapers

A. Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

B. Every insurer required to file an Audited Financial Report pursuant to this regulation, shall require the accountant to make available for review by Department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

C. In the conduct of the aforementioned periodic review by the Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department. Such reviews by the Department examiners shall be considered investigations and all working papers and



communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Department.

Regulation No. 100 § 14 Exemptions and Effective Dates

A. Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this regulation if the Commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this regulation, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with Departmental Regulation No. 65.

B. All insurers shall comply with this regulation for the year ending December 31, 1992, and each year thereafter, unless the Commissioner permits otherwise.

Regulation No. 100 § 15 Canadian and British Companies


B. For such insurers, the letter required in Section 6 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Section 4 and shall affirm that the opinion expressed is in conformity with such requirements.

Regulation No. 100 § 16 Severability Provision

If any section or portion of a section of this regulation or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of such provision to other persons or circumstances shall not be affected thereby.

Regulation No. 100 § 17 Effective Date

This regulation shall become effective ten (10) days from the date of certification that the properly executed regulation was delivered to the Secretary of State.



ALABAMA INSURANCE DEPARTMENT BULLETIN

Bulletin of January 14, 1998 Requirements for annual audited financial reports

January 14, 1998

This bulletin is written to advise every insurer doing business in the State of Alabama, foreign and domestic, that the Commissioner has determined that Regulation No. 100 requires that only domestic companies of the financial statements reporting the financial position and the results of operations of insurers, unless the Commissioner determines otherwise. Unless you are a domestic company, you do not need to file the required annual audited financial report unless you are directed specifically by the Commissioner to do so.

Michael DeBellis

Commissioner of Insurance


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ALASKA

ALASKA STATUTES

Insurance Laws TITLE 21—Insurance

Chapter 09 — Authorization of Insurers and General Requirements

21.09.200 Annual Statement

(a) Each authorized insurer shall annually, before March 2, file with the Director or the Director’s designee a full and true statement of its financial condition, transactions, and affairs as of the preceding December 31. The reporting format for a given year is the most recently approved National Association of Insurance Commissioners’ annual financial statement blank form and instructions, supplemented for additional information as required by the Director. The Director may require the statement to be filed on electronic media. The statement shall be verified by the oath of the insurer’s president or vice-president, and secretary, or, if a reciprocal insurer, by oath of the attorney-in-fact or its like offices if a corporation unless verification is waived by the Director of insurance. The filing locations must be published by the director at least annually.

(b) The statement of an alien insurer shall relate only to its transactions and affairs in the United States unless the Director requires otherwise. If the Director requires a statement concerning an alien insurer’s affairs throughout the world, the insurer shall file the statement with the Director as soon as is reasonably possible. The statement shall be verified by the insurer’s United States manager or other authorized officer.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS ARIZONA

ARIZONA STATUTES

Insurance Laws TITLE 20, Chapter 2

Article 1. Authorization of Insurers and General Requirements

20-223 Annual Statement; Payment of Fees

A. Each authorized domestic insurer shall annually on or before March 31 and each other authorized insurer shall annually on or before March 1 file with the director a true statement of its financial condition, transactions and affairs as of the December 31 preceding. The statement shall be completed pursuant to the instructions and accounting practices and procedures that are approved by the national association of insurance commissioners. The statement shall be in such general form and context as approved by the national association of insurance commissioners for the kinds of insurance to be reported upon, and as supplemented for additional information required by the director. The director shall adopt rules providing requirements for the filing of annual audited financial statements. Coincident with the filing of its annual statement, each such insurer shall pay such fees prescribed by Section 20-167 for filing the annual statement and renewal of its certificate of authority.

B. The statement of an alien insurer shall relate only to its transactions and affairs in the United States unless the director requires otherwise. The statement shall be verified by the insurer’s United States manager or other officer duly authorized.

C. The director may refuse to renew, or may suspend or revoke, the certificate of authority of any insurer failing to file its annual statement or pay its fees when due or within any extension of time therefore which the director, for good cause, may have granted.

D. Any insurer failing to file an annual statement or to pay its fees pursuant to the provisions of this section is subject to payment of a penalty fee not to exceed twenty-five dollars for each day of delinquency.

FOOTNOTE Note.—Pursuant to 1991, ch. 261, § 35, “Until the rules are adopted by the director of insurance providing requirements for the filing of annual audited financial statements as required by Section 20-223, Arizona Revised Statutes, as amended by this act, each authorized domestic insurer shall file its annual audited financial statements pursuant to the national association of insurance commissioners annual statement instructions requiring annual audited financial statements.” As of August 2003, the rules have not yet been adopted.

Title 20, Chapter 4 Article 10. Domestic Life and Disability Reinsurer

20-1082 Definitions

In this article, unless the context otherwise requires:

1. “Affiliated” has the same meaning prescribed in section 20-481.

2. “Credit life and disability reinsurer” means a domestic life and disability reinsurer that reinsures only credit life insurance or credit disability insurance that is issued according to chapter 6, article 10 of this title by an insurer that is authorized to transact insurance in this


ARIZONA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

state, as certified in a form prescribed by the director and reaffirmed annually in conjunction with the annual statement filed pursuant to section 20-223.

3. “Domestic life and disability reinsurer” means an incorporated stock reinsurer holding a certificate of authority to accept insurance ceded by any domestic insurer or foreign insurer.

4. “Unaffiliated” means not affiliated with another insurer as defined in section 20-104.

20-1083 Law Applicable to Domestic Life and Disability Reinsurers

A. All other provisions of this title that are not inconsistent with the provisions of this article apply to domestic life and disability reinsurers.

B. Notwithstanding section 20-233, an unaffiliated credit life and disability reinsurer shall submit an annual statement in a form acceptable to the director and the annual statement of the reinsurer is due August 1 if the reinsurer’s fiscal year ends on the preceding December 31 or November 1 if the reinsurer’s fiscal year ends on a preceding date other than the preceding December 31.

C. Notwithstanding section 20-233, subsection A, an unaffiliated credit life and disability reinsurer is exempt from the management discussion and analysis requirements prescribed in the accounting practices and procedures manual adopted by the National Association of Insurance Commissioners.

D. Notwithstanding section 20-731 and any rule that requires a hearing on the withdrawal of an insurer from this state, a hearing on a merger with or on withdrawal from this state by an unaffiliated credit life and disability reinsurer is not required, unless the requirement of a hearing applies to another party to the transaction.

E. The following do not apply to unaffiliated credit life and disability reinsurers:

1) The requirement of an examination at least once every five years pursuant to section 20-156, subsection A.

2) Any rule adopted pursuant to section 20-223, subsection A relating to audited financial statements.

3) Chapter 2, article 12 of this title.

4) The quantitative restrictions or limitations imposed on the investments of insurers by this title.

5) Chapter 3, article 8 of this title.

6) Section 20-722.



ARKANSAS REGULATIONS

Rule and Regulation 25 — Annual Audited Financial Reports

Rule and Regulation 25 § 1 Authority

This Rule and Regulation is promulgated by the Commissioner pursuant to the authority vested in the Commissioner under Arkansas Code Annotated § 23-61-108, 23-63-216, 23-71-103, 23-72-103, 23-74-602 and 25-15-201, et seq.

Rule and Regulation 25 § 2 Purpose and Scope

The purpose of this Rule and Regulation is to improve the Arkansas Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

Every insurer as defined in Section 3. shall be subject to this Rule and Regulation. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year, and less than 1,000 policyholders or certificateholders of direct written policies nationwide at the end of such calendar year shall be exempt from this Rule and Regulation for such year, unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities; except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing Audited Financial Reports in another state, pursuant to such other state’s requirement of Audited Financial Reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this Rule and Regulation if:

A. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Sections 4, 11 and 12, respectively. Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance; and

B. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in Section 10.

This Rule and Regulation shall not prohibit, preclude or in any way limit the Commissioner from ordering and/or conducting and/or performing examinations of insurers under Arkansas Code Annotated § 23-61-201 et seq.

Rule and Regulation 25 § 3 Definitions

A. “Audited Financial Report” means and includes those items specified in Section 5 of this Rule and Regulation.

B. “Accountant” and “Independent Certified Public Accountant” mean an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

C. “Commissioner” means the Arkansas Insurance Commissioner.

D. “Insurer” means an authorized insurer as defined in Arkansas Code Annotated § 23-60-102(11).



E. “Workpapers” are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

Rule and Regulation 25 § 4 Filing and Extensions for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit performed by an independent certified public accountant and shall file an Audited Financial Report with the Commissioner on or before June 1 for the calendar year ended December 31 immediately preceding. The Commissioner may require an insurer to file an Audited Financial Report earlier than June 1 with ninety (90) days advance notice to the insurer.

Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing, and must be received by the Commissioner, not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

Rule and Regulation 25 § 5 Contents of Annual Audited Financial Report

The annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

The annual Audited Financial Report shall include the following:

A. Report of independent certified public accountant;

B. Balance sheet reporting admitted assets, liabilities, capital and surplus;

C. Statement of operations;

D. Statement of cash flows;

E. Statement of changes in capital and surplus;

F. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

(1) A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Arkansas Code Annotated § 23-63-216, with a written description of the nature of these differences;

(2) A summary of ownership and relationships of the insurer and all affiliated companies; and

G. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner. The financial statement shall be comparative, presenting



the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an Audited Financial Report, the comparative data may be omitted.

Rule and Regulation 25 § 6 Designation of Independent Certified Public Accountant

Each insurer required by this Rule and Regulation to file an annual Audited Financial Report must within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this rule as the “accountant”) retained to conduct the annual audit set forth in this Rule and Regulation. Insurers not retaining an independent certified public accountant on the effective date of this Rule and Regulation shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first Audited Financial Report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner, stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed Audited Financial Report is dismissed or resigns, the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this Section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this Section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree. The insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

Rule and Regulation 25 § 7 Qualifications of Independent Certified Public Accountant

A. The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

B. Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Arkansas State Board of Public Accountancy, or similar code.

C. No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service, such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the



above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:

(1) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(2) Premium volume of the insurer; or

(3) Number of jurisdictions in which the insurer transacts business.

The requirements of this paragraph shall become effective two (2) years after the enactment of this Rule and Regulation.


(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or of any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of Arkansas with respect to any previous reports submitted under this Rule and Regulation; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this Rule and Regulation.

E. The Commissioner, as provided in Arkansas Code Annotated § 23-61-301, et seq., may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this Rule and Regulation, and may require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this Rule and Regulation.

Rule and Regulation 25 § 8 Consolidated or Combined Audits

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual Audited Financial Reports if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves, and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet;

B. Amounts for each insurer subject to this Section shall be stated separately;


D. Explanations or consolidating and eliminating entries shall be included; and




Rule and Regulation 25 § 9 Scope of Examination and Report of Independent Certified Public Accountant


Rule and Regulation 25 § 10 Notification of Adverse Financial Condition

The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee, any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination, or that the insurer does not meet the minimum capital and surplus requirement of Arkansas Code Annotated § 23-63-205 as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph, if such statement is made in good faith in compliance with the above paragraph.

If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this Rule and Regulation, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

Rule and Regulation 25 § 11 Report on Significant Deficiencies in Internal Controls

In addition to the annual Audited Financial Reports, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty (60) days after the filing of the annual Audited Financial Reports. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

Rule and Regulation 25 § 12 Accountant’s Letter of Qualifications

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual Audited Financial Report, a letter stating:

A. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the Arkansas State Board of Public Accountancy, or similar code;



B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this Rule and Regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

C. That the accountant understands the annual Audited Financial Report and his opinion thereon will be filed in compliance with this Rule and Regulation, and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

D. That the accountant consents to the requirements of Section 13 of this Rule and Regulation, and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Section 3;

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and

F. A representation that the accountant is in compliance with the requirements of Section 7 of this Rule and Regulation.

Rule and Regulation 25 § 13 Availability and Maintenance of CPA Workpapers

Every insurer required to file an Audited Financial Report pursuant to this Rule and Regulation shall require the accountant to make available for review by Department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

In the conduct of the aforementioned periodic review by the Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department. Such reviews by the Department examiners shall be considered investigations, and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Department.

Rule and Regulation 25 § 14 Exemptions and Effective Dates

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this Rule and Regulation if the Commissioner finds, upon review of the application, that compliance with this Rule and Regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this Rule and Regulation, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with Arkansas Code Annotated § 23-61-301, et seq., pertaining to administrative hearing procedures.

Domestic insurers retaining a certified public accountant on the effective date of this Rule and Regulation who qualify as independent shall comply with this Rule and Regulation for the year ending December 31, 1991, and each year thereafter, unless the Commissioner permits otherwise.

Domestic insurers not retaining a certified public accountant on the effective date of this Rule and Regulation who qualify as independent may meet the following schedule for compliance, unless the Commissioner permits otherwise.



A. As of December 31, 1991, file with the Commissioner:

(1) Report of independent certified public accountant;

(2) Audited balance sheet; and

(3) Notes to audited balance sheet.

B. For the year ending December 31, 1992, and each year thereafter, such insurers shall file with the Commissioner all reports required by this Rule and Regulation.

Foreign insurers shall comply with this Rule and Regulation for the year ending December 31, 1991, and each year thereafter, unless the Commissioner permits otherwise.

The effective date of this Rule and Regulation shall be September 2, 1991.

Rule and Regulation 25 § 15 Canadian and British Companies

A. In the case of Canadian and British insurers, the annual Audited Financial Report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

B. For such insurers, the letter required in Section 6 shall state that the accountant is aware of the requirements relating to the annual Audited Financial Report filed with the Commissioner pursuant to Section 4 and shall affirm that the opinion expressed is in conformity with such requirements.

Rule and Regulation 25 § 16 Severability Provision

If any Section or portion of a Section of this Rule and Regulation or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the Rule and Regulation or the applicability of such provision to other persons or circumstances shall not be affected thereby.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS CALIFORNIA

CALIFORNIA STATUTES

Insurance Laws Division 1, Part 2, Chapter 1

Article 10. Financial Statements of Insurers

Ins § 900.2 Filing of Audited Financial Reports

(a) All insurers doing business in this state shall have an annual audit by an independent certified public accountant. The audit shall be conducted and the audit report prepared and filed in conformity with the Annual Audited Financial Reports instructions contained in the Annual Statement Instructions as adopted from time to time by the National Association of Insurance Commissioners.

(b) The commissioner may grant a 30-day extension of the filing date upon a showing by the insurer and its independent certified public accountant of the reasons for requesting that extension and the determination by the commissioner of substantial cause for an extension. The request for an extension shall be submitted in writing not less than 20 days prior to the due date in sufficient detail to permit the commissioner to make an informed decision on the requested extension.

(c) The commissioner may promulgate regulations to further the purposes of this section.



COLORADO REGULATIONS

Division of Insurance—Part III., Section 1 Regulation 3-1-4—Annual Audited Financial Reports

3 CCR 702 Reg. 3-1-4 § 1 Authority

This regulation is promulgated under the authority of § 10-1-108(8), 10-1-109, 10-3-109, 10-3-118, 10-3-208, 10-5-117, 10-6-114, 10-6-129, 10-14-505, 10-14-602, 10-16-109, 10-16-111 and 8-45-121 C.R.S.

3 CCR 702 Reg. 3-1-4 § 2 Background And Purpose

The purpose of this regulation is to improve the oversight of the financial condition of companies by requiring an annual audit certified to by an independent certified public accountant of the financial statements reporting the financial position and results of operations of companies. In that a company’s financial condition is of great importance to policyholders, contractholders and the general public, the ability to place reliance on the reported financial condition of companies is necessary.

A. Every company, as defined in Section 3, shall be subject to this regulation. Insurers, as defined in Section 3, having direct premiums written in Colorado of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this regulation for such year. Insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more are not eligible for such exemption. Not withstanding the above, the Colorado Commissioner of Insurance (Commissioner) may make a specific finding that compliance is necessary to carry out statutory responsibilities.

B. Foreign or alien companies filing audited financial reports in another state, pursuant to such other state’s or country’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, may meet the requirements of this regulation by filing such reports, provided that:

1. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Sections 4, 11 and 12, respectively; and

2. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in Section 10.

3. This regulation shall not prohibit, preclude or in any way limit the Commissioner from ordering and/or conducting and/or performing examinations of companies under Colorado laws and regulations.

3 CCR 702 Reg. 3-1-4 § 3 Definitions

The following terms used in this regulation shall have the following meanings:

A. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and with all states where licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

B. “Audited financial report” means all of the items specified in Section 5 of this regulation.



C. “Company” means an insurer, captive insurance company, health maintenance organization or the Colorado Compensation Insurance Authority.

D. “Insurer” means a licensed insurance company, authorized surplus lines insurance company, authorized nonadmitted reinsurer nonprofit hospital, medical-surgical, and health service corporation or fraternal benefit society.

E. “NAIC” means the National Association of Insurance Commissioners.

F. “Workpapers” means the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the audit of the financial statements of a company. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the audit of the financial statements of a company and which support the opinion thereof.

3 CCR 702 Reg. 3-1-4 § 4 Filing and Extensions for Filing of Annual Audited Financial Reports

A. All companies shall have an annual audit by an independent certified public accountant and shall file the audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding.

B. Extensions of the June 1 filing date may be granted by the Commissioner for thirty (30) day periods upon a showing by the company and its independent certified public accountant of the reasons for requesting such extension and upon determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

3 CCR 702 Reg. 3-1-4 § 5 Contents of Annual Audited Financial Report

A. The annual Audited Financial Report shall report the financial position of the company as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices.

B. The annual Audited Financial Report shall include the following:

1. Report of Independent Certified Public Accountant;

2. Balance Sheet reporting admitted assets, liabilities, capital and surplus;

3. Statement of Operations;

4. Statement of Cash Flows;

5. Statement of Changes in Capital and Surplus;

6. Notes to financial statements. These notes shall at least include those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual, and shall also include: Reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to § 10-3-109, 10-3-208, 10-5-110, 10-6-114, 10-14-602, 10-16-111 or 8-45-121 C.R.S., with a written description of the nature of these differences.



7. The financial statements included in the Audited Financial Report shall:

a. Be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the company filed with the Commissioner;

b. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which a company is required to file an audited financial report, the comparative data may be omitted;

c. Amounts may be rounded to the nearest thousand dollars, and immaterial amounts may be combined.

3 CCR 702 Reg. 3-1-4 § 6 Designation of Independent Certified Public Accountant by Colorado Domestic Companies

A. Each Colorado domestic company required by this regulation to file an annual audited financial report must, within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accountant retained to conduct the annual audit set forth in this regulation.

B. The domestic company shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Colorado Insurance Code and the regulations of the Division that relate to accounting and financial matters and affirming that the opinion expressed on the financial statements will be in terms conforming to the statutory accounting practices prescribed or otherwise permitted by the Division, specifying such exceptions as the accountant believes may be appropriate.

C. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the company shall within five (5) working days notify the Division of this event. The company shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused the accountant to make reference to the subject matter of the disagreement in connection with the opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the company responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The company shall also request in writing that such former accountant furnish a letter addressed to the company stating whether the accountant agrees with the statements contained in the company’s letter and, if not, stating the reasons why the accountant does not agree. The company shall furnish such responsive letter from the former accountant to the Commissioner together with its own letter.

3 CCR 702 Reg. 3-1-4 § 7 Qualifications of Independent Certified Public Accountant

A. No partner or other person responsible for rendering a report may act in that capacity for more than five (5) consecutive years for a Colorado domestic company and no more than seven (7) years for a foreign or alien company without approval of the Commissioner. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its affiliates for a period of two (2) years. A company may make application to the Commissioner for relief from the above rotation



requirement by providing sufficient information for the Commissioner to review. The company must receive a written waiver of this requirement to continue with an existing partner or other person.

B. Notwithstanding the above or the provisions of Section 3.A., the Commissioner shall not recognize as a qualified independent certified public accountant, and not accept any Annual Audited Financial Report, prepared in whole or in part by, any natural person who:

1. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

2. Has been found to have violated the insurance laws of Colorado with respect to any previous reports submitted under this regulation; or

3. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

3 CCR 702 Reg. 3-1-4 § 8 Consolidated or Combined Audits

A. An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency or integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

1. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet;

2. Amounts for each insurer subject to this section shall be stated separately;

3. Noninsurance operations may be shown on the worksheet on a combined or individual basis;

4. Explanations of consolidating and eliminating entries shall be included; and

5. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

3 CCR 702 Reg. 3-1-4 § 9 Scope of Audit and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 hereof shall be audited by an independent certified public accountant. The audit of the company’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiners Handbook promulgated by the NAIC as the independent certified public accountant deems necessary. For information on the NAIC manuals please contact, Chief, Financial Examinations, Colorado Division of Insurance.

3 CCR 702 Reg. 3-1-4 § 10 Notification of Adverse Financial Condition

A. The company required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing within five (5) business days to the Board of Directors and its audit committee any determination by the independent certified public accountant that the company has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under



audit or that the company does not meet the minimum capital and surplus requirements under Colorado law as of that date. The company which has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified accountant shall furnish the Commissioner a copy of its report within the next five (5) business days.

B. If the certified public accountant, subsequent to the date of the audited financial report filed pursuant to this regulation, becomes aware of facts which might have affected the report, the Division notes the obligation of the certified public accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.

3 CCR 702 Reg. 3-1-4 § 11 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each company shall furnish the Commissioner with a written report prepared by the independent certified public accountant describing significant deficiencies in the company’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the AICPA) requires an accountant to communicate significant deficiencies (known as “Reportable Conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report shall be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the company with the Division within sixty (60) days after filing the annual audited financial statements. The company is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

3 CCR 702 Reg. 3-1-4 § 12 Accountant’s Letter of Qualifications

The accountant shall furnish to the company in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

A. That the accountant is independent with respect to the company and conforms to the appropriate standards of the profession for example, the Code of Professional Ethics and Pronouncements of the AICPA and the Rules of Professional Conduct of the Colorado Board of Public Accountancy, or similar code.

B. The background and experience in general, and the experience in audits of companies of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as deemed appropriate where use is consistent with standards prescribed by generally accepted auditing standards.

C. That the accountant understands the annual audited financial report and the opinion thereon will be filed in compliance with this regulation and that the Commissioner will be relying on this information in the monitoring and regulation of the financial positions of companies.

D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the Commissioner, or the designee or appointee of the Commissioner, the workpapers as defined in Section 3.

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA.



3 CCR 702 Reg. 3-1-4 § 13 Review and Retention of Workpapers and Documents

A. Every company required to file an Audited Financial Report pursuant to this regulation, shall require the accountant to make available for review by Division examiners, all workpapers prepared in the conduct of his examination and any communication related to the audit between the accountant and the company, at the offices of the company, at the Division or at any other reasonable place designated by the Commissioner. The company shall require that the accountant retain the audit workpapers and communication documents until the Division has filed a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

B. In the conduct of the aforementioned periodic review by the Division examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Division. Such reviews by the Division examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Division.

C. Notwithstanding the above, audit reports and workpapers are additionally subject to, and protected by, the provisions of Article 2 of Title 12, C.R.S. Companies which are subject to oversight by both the Division and the State Auditor’s Office are also governed by the provisions of Article 3 of Title 2, C.R.S.

3 CCR 702 Reg. 3-1-4 § 14 Exemption

Upon written application of any company, the Commissioner may consider granting an exemption from compliance with this regulation. The Commissioner shall consider, in addition to any other pertinent facts and information about operations and financial condition, whether compliance with this regulation would constitute a financial hardship to the company. A request for exemption must be made for each calendar year for which such exemption is sought. Application for exemption must be received on or before December 31 of the year for which such exemption is sought.

3 CCR 702 Reg. 3-1-4 § 15 Severability

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby.

3 CCR 702 Reg. 3-1-4 § 16 Effective Date

This regulation, originally effective December 31, 1990, is hereby amended and restated and shall be effective April 1, 2001.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS CONNECTICUT

CONNECTICUT REGULATIONS

TITLE 38a.—Insurance Annual Audited Financial Reports

38a-54-1 Purpose and Scope

(a) Sections 38a-54-1 to 38a-54-14, inclusive, are intended to improve the Insurance Department’s surveillance of the financial condition of insurance companies, health care centers and fraternal benefit societies doing business in the State of Connecticut by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(b) (1) Every insurer as defined in Section 38a-54-2 shall be subject to the requirements of Sections 38a-54-1 to 38a-54-14, inclusive, insurers having direct premiums written in this state of less than $1,000,000 in any year and having less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of any year are exempt from Sections 38a-54-1 to 38a-54-14, inclusive, for such year, unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities, except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more shall not be so exempt.

(2) Foreign and alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from Sections 38a-54-1 to 38a-54-14, inclusive, if:

(A) a copy of the Audited Financial Report, report or significant deficiencies in internal controls, and the Accountant’s letter of qualifications, which are filed with such other state, are filed with the Commissioner in accordance with the filing dates specified in Sections 38a-54-3, 38a-54-9a and 38a-54-10, respectively, (Canadian insurers may submit independent auditors’ reports as filed with the Canadian Dominion Department of Insurance); and

(B) a copy of any notification of adverse financial condition report filed with such other state is filed with the Commissioner within the time specified in Section 38a-54-9.

(c) Sections 38a-54-1 to 38a-54-14, inclusive, shall not prohibit, preclude or in any way limit the Insurance Commissioner from ordering and/or conducting and/or performing examinations of insurers under the General Statutes, Regulations and procedures of the Connecticut Insurance Department.

38a-54-2 Definitions

As used in Sections 38a-54-1 to 38a-54-13, inclusive:

(a) “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which he or she is licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

(b) “Audited financial report” means and includes those items specified in Section 38a-54-4.


CONNECTICUT NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

(c) “Commissioner” means the Insurance Commissioner of the State of Connecticut.

(d) “Department” or “Insurance Department” means the Insurance Department of the State of Connecticut.

(e) “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from other misrepresentations made knowingly or otherwise by the insurer or its representatives.

(f) “Insurer” or “Insurance Company” means an insurance company, health care center or fraternal benefit society licensed by the Commissioner to do business in this State.

(g) “Independent Auditor” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British insurers, it means a Canadian or British-chartered accountant.

(h) “NAIC” means the National Association of Insurance Commissioners.

(i) “Workpapers” means the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, summary of unadjusted differences, audit completion memorandum, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support his or her opinion thereof.

38a-54-3 Filing and Extension for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

Extensions of the June 1 filing date may be granted by the Commissioner for thirty (30) day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension shall be received in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

38a-54-4 Contents of Annual Audited Financial Report

(a) The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

(b) The annual audited financial report shall include the following:

(1) report of independent certified public accountant;

(2) balance sheet reporting admitted assets, liabilities, capital and surplus;



(3) statement of operations;

(4) statement of changes in capital and surplus;

(5) statement of cash flows;

(6) notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statement and the annual statement filed pursuant to Section 38a-53 of the Connecticut General Statutes with a written description of the nature of these differences.

(c) The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner; the financial statements shall be comparative, presenting the amounts for the years ended December 31 of the current and immediately preceding year. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

38a-54-5 Designation of Independent Auditor

Each insurer required to file an annual audited financial report pursuant to Section 38a-54-3 shall within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in Sections 38a-54-14, inclusive, as the “accountant”) retained to conduct the annual audit required by Section 38a-54-3. Insurers not retaining an independent certified public accountant on the effective date of Section 38a-54-3 shall register the name and address of their retained independent certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the insurance code and the rules and Regulations of the insurance department of its state of domicile that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by such department, specifying such exceptions as he or she may believe appropriate. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall notify the Connecticut Insurance Department within five (5) business days of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former independent accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, that is, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.



38a-54-6 Qualifications of Independent Auditor

(a) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant if the person or firm: (1) is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant; or (2) has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as “indemnification”) with respect to the audit of the insurer.

(b) Except as otherwise provided herein, the Commissioner shall recognize an independent certified public accountant as qualified in accordance with Sections 38a-54-1 to 38a-54-14, inclusive, as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Connecticut Board of Public Accountancy, or similar code.

(c) A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under Chapter 704c of the Connecticut General Statutes, the mediation or arbitration provisions shall operate at the option of the statutory successor.

(d) No partner or other persons responsible for rendering an independent audit report may act in that capacity for more than seven (7) consecutive years. Following any period or service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief sought should be granted:



(3) Number of jurisdictions in which the insurer transacts business. The requirements of this subsection shall become effective on July 29, 1996.

(e) The Commissioner shall not recognize as a qualified independent auditor, nor accept any annual audited financial report prepared in whole or in part by, any person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this State with respect to any previous reports submitted under Sections 38a-54-1 to 38a-54-14, inclusive; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of Sections 38a-54-1 to 38a-54-14, inclusive.



(f) The Insurance Commissioner may, as provided in Section 38a-16 of the Connecticut General Statutes and the Rules of Practice of the Insurance Department, hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to Section 38a-54-3 and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this section.

38a-54-7 Consolidated or Combined Audits

An insurance company may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(a) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

(b) Amount for each insurer subject to this section shall be stated separately.

(c) Non-insurance operations may be shown on the worksheet on a combined or individual basis.

(d) Explanations of consolidating and eliminating entries shall be included.

(e) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

38a-54-8 Scope of Examination and Report of Independent Auditor

Financial statements furnished pursuant to Section 38a-54-4 shall be examined by an independent certified public accountant. The examination of the insurance company’s financial statements shall be conducted in accordance with generally accepted auditing standards and consideration should be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the accountant deems necessary.

38a-54-9 Notification of Adverse Financial Condition

The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to notify in writing within five (5) business days the Board of Directors or its Audit Committee any determination by that independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of Section 38a-72 of the Connecticut General Statutes, as amended, as of that date. The insurer shall furnish such notification to the Commissioner within five (5) business days of receipt thereof and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with this section if such statement is made in good faith compliance with this section.



If the accountant, subsequent to the date of the audited financial report filed pursuant to Section 38a-54-3, becomes aware of facts which might have affected his or her report, the accountant shall fulfill his or her obligation to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

38a-54-9a Report on Significant Deficiencies in Internal Controls

In addition to the annual financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

38a-54-10 Independent Auditor’s Letter of Qualifications


(1) That the accountant is independent with respect to the insurer and conforms to the standards or his or her profession as contained in the Code of Professional Ethics and Pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Connecticut Board of Public Accountancy, or similar code.

(2) With respect to the staff assigned to the engagement, their background and experience in general, their experience in audits of insurers, and whether each is an independent certified public accountant. Nothing within Sections 38a-54-1 to 38a-54-14, inclusive, shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant understands the annual audited financial report and his or her opinion thereon will be filed in compliance with Sections 38a-54-1 to 38a-54-14, inclusive, and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) That the accountant consents to the requirements of Section 38a-54-11 and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Section 38a-54-2.

(5) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(6) A representation that the accountant is in compliance with the requirements of Section 38a-54-6.

38a-54-11 Availability and Maintenance of Independent Auditor Workpapers

Every insurer to file an audited financial report pursuant to Section 38a-54-3, shall require the accountant to make available for review by Insurance Department examiners, all workpapers prepared in the conduct of his or her



examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Insurance Department has filed a report of examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

In the conduct of the aforementioned periodic review by the Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department. Such reviews by the Department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Department.

38a-54-12 Exemption

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with Sections 38a-54-1 to 38a-54-14, inclusive, if the Commissioner finds, upon review of the application, that compliance would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the rules of practice of the Insurance Department, Sections38a-8-7 to 38a-8-75, inclusive, of the Regulations of Connecticut State Agencies. A request for exemption must be made for each calendar year for which such exemption is sought. Application for exemption must be received on or before December 31 of the year for which such exemption is sought.

38a-54-13 Canadian and British Companies

(a) In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

(b) For such insurers, the letter required in Section 38a-54-5 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Section 38a-54-3 and shall affirm that the opinion expressed is in conformity with such requirements.

38a-54-14 Severability

If any provision of Sections 38a-54-1 to 38a-54-13, inclusive, or the applicability thereof to any person or circumstance is held to be invalid, the remainder of said sections or the applicability of such provision to other persons or circumstances shall not be affected thereby.

Statement of Purpose: To update the provisions of regulations concerning annual audited financial reports



DELAWARE REGULATIONS

Regulation 50 — Audited Financial Reports

Regulation 50 § 1 Authority

This Regulation is promulgated and adopted pursuant to 18 Del. C. Sections 314, 322(a), 324 and 526, and 29 Del. C. Section 10117.

Regulation 50 § 2 Purpose and Scope

The purpose of this regulation is to improve the Delaware Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

Every insurer (as defined in Section 3) shall be subject to this regulation. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this regulation for such year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirements of audited financial reports are exempt from filing in Delaware unless such filing is specifically requested by the Commissioner. Any foreign or alien insurer receiving a copy of any notification of adverse financial condition report must file such report with the Commissioner within the time specified in Section 10.

This regulation shall not prohibit, preclude or in any way limit the Commissioner ordering and/or conducting and/or performing examinations of insurers under the rules and regulations of the Delaware Department of Insurance and the practices and procedures of the Delaware Insurance Department.

Regulation 50 § 3 Definitions

The following terms when used in this Regulation, shall have the following meanings:

1. Accountant or certified accountant. A certified public accountant or public accountant licensed to practice in this State within the meaning of the C.P.A. Law (24 Del. C. Sections 101-121) or in any other state with similar licensing requirements.

2. Audited financial report. Those items specified in Section 5 of this regulation.

3. Commissioner. The Insurance Commissioner of the State of Delaware.

4. Department. The Insurance Department of the State of Delaware.

5. Insurer. A licensed insurer as defined in Chapter 5 of the Delaware Insurance Code, Title 18 Delaware Code.

6. Qualified Loss Reserve Specialist. A member in good standing of the American Academy of Actuaries, or a person who otherwise has competency in loss reserve evaluation.


DELAWARE NAIC GUIDE TO COMPLIANCE WITH STATET AUDIT REQUIREMENTS

Regulation 50 § 4 Filing and Extensions for Filing of Annual Audited Financial Reports


Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

Regulation 50 § 5 Contents of Annual Audited Financial Report

The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.








(1) A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Section 526 of the Delaware Insurance Statute with a written description of the nature of these differences.

(2) A summary of ownership and relationships of the insurer and all affiliated companies.

G. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

Regulation 50 § 6 Designation of Independent Certified Public Accountant

Each insurer required by this regulation to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the



independent certified public accountant or accounting firm (generally referred to in this rule as the “accountant”) retained to conduct the annual audit set forth in this regulation. Insurers not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first certification is to be filed.

The insurer shall obtain a letter from such accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this Section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

Regulation 50 § 7 Qualifications of Independent Certified Public Accountant


B. Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Delaware Board of Public Accountancy, or similar code.







The requirements of this paragraph shall become effective two (2) years after the enactment of this rule.



(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

E. The Insurance Commissioner, as provided in the Delaware Administrative Procedures Act and Chapter 3, may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this regulation and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this regulation.

Regulation 50 § 8 Consolidated or Combined Audits







Regulation 50 § 9 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.



Regulation 50 § 10 Notification of Adverse Financial Condition

The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Delaware Insurance Statute as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.

If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this regulation, becomes aware of facts which might have affected his report, the Department notices the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

Regulation 50 § 11 Report on Significant Deficiencies in Internal Controls


Regulation 50 § 12 Accountant’s Letter of Qualifications


A. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Delaware Board of Public Accountancy, or similar code.

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.



C. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this regulation and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Section 13.


F. A representation that the accountant is in compliance with the requirements of Section 7 of this rule.

Regulation 50 § 13 Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

Every insurer required to file an Audited Financial Report pursuant to this regulation, shall require the accountant to make available for review by Department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.


Regulation 50 § 14 Exemptions and Effective Dates

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this regulation if the Commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this regulation, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Delaware Administrative Procedures Act and Chapter 3.

Domestic insurers retaining a certified public accountant on the effective date of this regulation who qualify as independent shall comply with this regulation for the year ending December 31, 1994 and each year thereafter unless the Commissioner permits otherwise.

Domestic insurers not retaining a certified public accountant on the effective date of this regulation who qualify as independent may meet the following schedule for compliance unless the Commissioner permits otherwise.

A. As of December 31, 1994, file with the Commissioner:




(2) Audited balance sheet;


B. For the year ending December 31, 1994 and each year thereafter, such insurers shall file with the Commissioner all reports required by this regulation.

Foreign insurers shall comply with this regulation for the year ending December 31, 1994 and each year thereafter, unless the Commissioner permits otherwise.

Regulation 50 § 15 Canadian and British Companies



Regulation 50 § 16 Severability Provision

If any section or portion of a section of this regulation or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of such provision to other persons or circumstances shall not be affected thereby.



DISTRICT OF COLUMBIA STATUTES

Insurance Laws TITLE 31 — Insurance

Chapter 3 — Annual Audited Financial Reports

31-301 Definitions

For the purposes of this chapter, the term:

(1) “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

(2) “Audited financial report” means and includes those items specified in § 31-303.

(3) “Insurer” means a licensed insurer or authorized company which has authority from the Mayor to do business in the District of Columbia as provided under § 31-2502.02 and 31-4304.

(4) “NAIC” means the National Association of Insurance Commissioners.

31-302 Filing and Extensions for Filing of Annual Audited Financial Reports

(a) All insurers shall have an annual audit prepared by an independent certified public accountant and shall file an audited financial report with the Mayor on or before June 1st for the year ended December 31st immediately preceding. The Mayor may require an insurer to file an audited financial report earlier than June 1st with 90 days advance notice to the insurer.

(b) Extensions of the June 1st filing date may be granted by the Mayor for 30-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting the extension and determination by the Mayor of good cause for an extension. The request for extension must be submitted in writing not less than 10 days prior to the due date in sufficient detail to permit the Mayor to make an informed decision with respect to the requested extension.

31-303 Contents of Annual Audited Financial Reports

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flow, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Mayor. The annual audited financial report shall include the following:

(1) Report of an independent certified public accountant;

(2) Balance sheet reporting admitted assets, liabilities, capital, and surplus;

(3) Statement of operations;

(4) Statement of cash flows;

(5) Statement of changes in capital and surplus;



(6) Notes to financial statements, including notes required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles. The notes shall also include:

(A) A reconciliation of differences, if any, between the audited statements to be filed with the Mayor and the NAIC annual statement filed pursuant to the insurance laws of the District of Columbia; and

(B) A summary of ownership and relationships of the insurer and all affiliated companies; and

(7) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Mayor, and the financial statement shall be comparative, presenting the amounts as of December 31st of the current year and the amounts as of the immediately preceding December 31st. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

31-304 Designation of Independent Certified Public Accountant

(a) Each insurer required by this chapter to file an annual audited financial report, within 60 days after becoming subject to the requirement, shall register in writing with the Mayor the name and address of the independent certified public accountant or accounting firm retained to conduct the required annual audit. Insurers not retaining an independent certified public accountant on October 21, 1993, shall register the name and address of their retained certified public accountant not less than 6 months before the date when the first audited financial report is to be filed.

(b) The insurer shall obtain a letter from the accountant, and file a copy with the Mayor, stating that the accountant is aware of the provisions of the insurance laws and rules of the District of Columbia that relate to accounting and financial matters, and affirming that he or she will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Mayor, specifying any exceptions he or she believes appropriate.

(c) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall, within 5 business days, notify the Mayor of this event. The insurer shall, within 10 business days of the above notification, also furnish the Mayor with a separate letter stating whether in the 24 months preceding the event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this subsection include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, that is between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also request in writing that the former accountant furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter, and, if not, stating the reasons that he does not agree. The insurer shall furnish the responsive letter from the former accountant to the Mayor together with its own.



31-305 Qualifications of Independent Certified Public Accountant

(a) The Mayor shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(b) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants, Chapter 15 of Title 3, and rules promulgated by the District of Columbia Board of Accountancy.

(c) No partner or other person responsible for rendering a report may act in that capacity for more than 7 consecutive years. Following any period of service that person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 2 years. An insurer may make application to the Mayor for relief from the above rotation requirement on the basis of unusual circumstances. The Mayor may consider the following factors in determining if the relief should be granted:

(1) Number of partners, expertise of the partners, or the number of insurance clients in the currently registered firm;



The requirements of this subsection shall become effective 2 years after the enactment of this chapter.

(d) The Mayor shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report prepared, in whole or in part, by any natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influences and Corrupt Organizations Act, approved October 15, 1970 (84 Stat. 941; 18 U.S.C. § 1961 et seq., or any dishonest conduct or practices under any federal, state, or District of Columbia law;

(2) Has been found to have violated the insurance laws of the District of Columbia with respect to any previous reports submitted under this chapter; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this chapter.

(e) The Mayor, as provided in § 31-2502.03 and 31-4305, may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this chapter and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this chapter.

31-306 Consolidated or Combined Audits

An insurer may make written application to the Mayor for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or 100% reinsurance agreement that affects the solvency and integrity of the



insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In these cases, a column consolidating or combining worksheet shall be filed with the report, as follows:

(1) Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet.

(2) Amounts for each insurer subject to this section shall be stated separately.

(3) Noninsurance operations may be shown on the worksheet on a combined or individual basis.

(4) Explanations of consolidating and eliminating entries shall be included.

(5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

31-307 Scope of Audit

Financial statements furnished pursuant to § 31-303 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the NAIC as the independent certified public accountant deems necessary.

31-308 Notification of Adverse Financial Condition

(a) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within 5 business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Mayor as of the balance sheet date currently under examination, or that the insurer does not meet the minimum capital and surplus requirement pursuant to § 31-2502.13 and 31-4408, as of that date. An insurer who has received a report pursuant to this subsection shall forward a copy of the report to the Mayor within 5 business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Mayor. If the independent certified public accountant fails to receive the evidence within the required 5-business-day period, the independent certified public accountant shall furnish to the Mayor a copy of its report within the next 5 business days.

(b) No independent public accountant shall be liable in any manner to any person for any statement made in connection with subsection (a) of this section if the statement is made in good faith in compliance with subsection (a) of this section.

(c) If the accountant, subsequent to the date of the audited financial report filed pursuant to this chapter, becomes aware of facts which might have affected his report, the accountant shall take action prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

31-309 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Mayor with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit



(AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies, known as reportable conditions, noted during a financial statement audit to the appropriate parties within an entity. No report shall be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Mayor within 60 days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.

31-310 Accountant’s Letter of Qualification

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating that:

(1) The accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the rules of the District of Columbia Board of Accountancy.

(2) The background and experience of the accountant in general is listed, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this chapter shall be construed as prohibiting the accountant from utilizing the staff he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(3) The accountant understands the annual audited financial report and his or her opinion thereon will be filed in compliance with this chapter and that the Mayor will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) The accountant consents to the requirements of § 31-311 and that the accountant consents and agrees to make available for review by the Mayor, his or her designee or his or her appointed agent, the workpapers, as defined in § 31-311.

(5) The accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(6) The accountant is in compliance with the requirements of § 31-305.

31-311 Definition, Availability and Maintenance of CPA Workpapers

A. For purposes of this chapter, the term “workpapers” are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents, and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support his or her opinion thereof.

B. Every insurer required to file an audited financial report pursuant to this chapter shall require the accountant to make available for review by the Mayor’s examiners all workpapers prepared in the conduct of his or her examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, or at any other reasonable place designated by



the Mayor. The insurer shall require that the accountant retain the audit workpapers and communications until the Mayor has filed a report on examination covering the period of the audit but no longer than 7 years from the date of the audit report.

C. The Mayor may make and retain photocopies of pertinent audit workpapers. The review by the Mayor’s examiners shall be considered investigations and all working papers and communications obtained during the course of the investigations shall be afforded the same confidentiality as other examination workpapers generated by the Mayor.

31-312 Exemptions and Effective Dates

A. Upon written application of any insurer, the Mayor may grant an exemption from compliance with this chapter if the Mayor finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer and the public interest would not be unduly compromised by the exemption. An exemption may be granted at any time, and from time to time for a specified period or periods. Within 10 days from a denial of an insurer’s written request for an exemption from this chapter, the insurer may request in writing a hearing on its application for an exemption. The hearing shall be held in accordance with those rules pertaining to administrative hearing procedures as the Mayor may prescribe.

B. Domestic insurers retaining a certified public accountant on October 21, 1993 who qualify as independent shall comply with this chapter for the year ending December 31, 1993, and each year thereafter, unless the Mayor permits otherwise.

C. Domestic insurers not retaining a certified public accountant, who qualifies as independent, on October 21, 1993, shall meet the following schedule for compliance unless the Mayor permits otherwise:

(1) As of December 31, 1993, file with the Mayor:


(b) Audited balance sheet; and

(c) Notes to audited balance sheet.

(2) For the year ending December 31, 1993, and each year thereafter, these insurers shall file with the Mayor all reports required by this chapter.

D. Foreign insurers shall comply with this chapter for the year ending December 31, 1993, and each year thereafter, unless the Mayor permits otherwise.

31-313 Canadian and British Companies

A. In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by these companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

B. For Canadian and British insurers, the letter required in § 31-304 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Mayor pursuant to § 31-302 and shall affirm that the opinion expressed is in conformity with these requirements.



31-314 Applicability

A. Every insurer, as defined in § 31-301, shall be subject to this chapter. Insurers having direct premiums written in the District of Columbia of less than $1,000,000 in any calendar year and having less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of any calendar year shall be exempt from this chapter for that year, unless the Mayor makes a specific finding that compliance is necessary for the Mayor to carry out statutory responsibilities, except that insurers having assumed premiums pursuant to contracts or treaties of reinsurance of $1,000,000 or more will not be so exempt.

B. Foreign or alien insurers filing audited financial reports in another state pursuant to the other state’s requirement of audited financial reports which has been found by the Mayor to be substantially similar to the requirements of this chapter are exempt from this chapter if:

(1) A copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with the other states are filed with the Mayor in accordance with the filing dates specified in § 31-302, 31-309, and 31-310, respectively. Canadian insurers may submit accounts reports as filed with the Canadian Dominion Department of Insurance.

(2) A copy of any notification of adverse financial condition report filed with the other states is filed with the Mayor within the time specified in § 31-308.

C. This chapter shall not prohibit, preclude, or in any way limit the Mayor from ordering conducting, or performing examinations of insurers under the rules and the practices and procedures of the District of Columbia.



FLORIDA STATUTES

TITLE XXXVII – Insurance Chapter 624 – Insurance Code: Administration and General Provisions

Part III. Authorization of Insurers and General Requirements

624.424 Annual statement; Certified Financial Report) States in Part:

(8) (a) All authorized insurers must have conducted an annual audit by an independent certified public accountant and must file an audited financial report with the office on or before June 1 for the preceding year ending December 31. The office may require an insurer to file an audited financial report earlier than June 1 upon 90 days’ advance notice to the insurer. The office may immediately suspend an insurer’s certificate of authority by order if an insurer’s failure to file required reports, financial statements, or information required by this subsection or rule adopted pursuant thereto creates a significant uncertainty as to the insurer’s continuing eligibility for a certificate of authority.

(b) Any authorized insurer otherwise subject to this section having direct premiums written in this state of less than $1 million in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of such calendar year is exempt from this section for such year unless the office makes a specific finding that compliance is necessary in order for the office to carry out its statutory responsibilities. However, any insurer having assumed premiums pursuant to contracts or treaties or reinsurance of $1 million or more is not exempt. Any insurer subject to an exemption must submit by March 1 following the year to which the exemption applies an affidavit sworn to by a responsible officer of the insurer specifying the amount of direct premiums written in this state and number of policyholders or certificate holders.

(c) The board of directors of an insurer shall hire the certified public accountant that prepares the audit required by this subsection and the board shall establish an audit committee or three or more directors of the insurer or an affiliated company. The audit committee shall be responsible for discussing audit findings and interacting with the certified public accountant with regard to his findings. The audit committee shall be comprised solely of members who are free from any relationship that, in the opinion of its board of directors, would interfere with the exercise of independent judgment as a committee member. The audit committee shall report to the board any findings of adverse financial conditions or significant deficiencies in internal controls that have been noted by the accountant. The insurer may request the office to waive this requirement of the audit committee membership based upon unusual hardship to the insurer.

(d) An insurer may not use the same accountant or partner of an accounting firm responsible for preparing the report required by this subsection for more than 7 consecutive years. Following this period, the insurer may not use such accountant or partner for a period of 2 years, but may use another accountant or partner of the same firm. An insurer may request the office to waive this prohibition based upon an unusual hardship to the insurer and a determination that the accountant is exercising independent judgment that is not unduly influenced by the insurer considering such factors as the number of partners, expertise of the partners or the number of insurance clients of the accounting firm; the premium volume of the insurer; and the number of jurisdictions in which the insurer transacts business.



(e) The commission department shall adopt rules to implement this subsection, which rules must be in substantial conformity with the 1998 Model Rule Requiring Annual Audited Financial Reports adopted by the National Association of Insurance Commissioners, except where inconsistent with the requirements of this subsection. Any exception to, waiver of, or interpretation of accounting requirements of the commission department must be in writing and signed by an authorized representative of the office. No insurer may raise as a defense in any action, any exception to, waiver of, or interpretation of accounting requirements, unless previously issued in writing by an authorized representative of the office.



FLORIDA REGULATIONS

Florida Administrative Code Title 4, Chapter 4-137 — Insurer Reporting Requirements

FAC Rule 4-137.002 Annual Audited Financial Reports

(1) The purpose of this rule is to improve the Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent Certified Public Accountants of the financial statements reporting the financial position and the results of operations of insurers.

(2) (a) Every authorized insurer, as defined in subsection (3), below, shall be subject to this rule. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and fewer than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of the calendar year shall be exempt from this rule for that year (unless the Department makes a specific finding that compliance is necessary for the Department to carry to statutory responsibilities), except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt. Any insurer subject to an exemption must submit by March 1 following the year to which the exemption applies an affidavit sworn to by a responsible officer of the insurer specifying the amount of direct premiums written in this state and number of policyholders or certificateholders.

(b) Foreign or alien insurers filing Audited Financial Reports in another state, pursuant to the other state’s requirement of audited financial reports which has been found by the Department to be substantially similar to the requirements herein, may, in lieu of the other requirements of this rule, file the following with the Department in accordance with the filing dates referenced below:

1. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with the other state. Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department.

2. A copy of any Notification of Adverse Financial Condition Report filed with the other state.

(c) This rule shall not prohibit, preclude, or in any way limit the Department from ordering and/or conducting and/or performing examinations of insurers under its rules.

(3) Definitions

(a) “Audited Financial Report” means and includes those items specified in subsection (5), below.

(b) “Accountant” and “Independent Certified Public Accountant” means an independent Certified Public Accountant or accounting firm in good standing with the licensing authority or accrediting authority for Certified Public Accountants in all states in which the accountant practices. For Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

(c) “Department” means the Florida Office of Insurance Regulation.

(d) “Insurer” means an authorized insurer as defined in Section 624.09, Florida Statutes.



(4) Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an independent Certified Public Accountant and shall file an Audited Financial Report with the Department on or before June 1 for the year ended December 31 immediately preceding. The Department may require an insurer to file an Audited Financial Report earlier than June 1 with ninety (90) days advance notice to the insurer.

(5) Contents of Annual Audited Financial Report

(a) The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of the state of domicile.

(b) The Annual Audited Financial Report shall include the following:

1. Report of independent Certified Public Accountant.






a. A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Section 624.424(1), Florida Statutes, with a written description of the nature of these differences.

b. A summary of ownership and relationships of the insurer and all affiliated companies.

7. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Department, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an Audited Financial Report, the comparative data may be omitted.

(6) Designation of Independent Certified Public Accountant

(a) Each insurer required by this rule to file an annual Audited Financial Report must, by December 31 of the year subject to audit, register with the Department in writing the name and address of the independent Certified Public Accountant or accounting firm (generally referred to in this rule as the “accountant”) retained to conduct the annual audit set forth in this rule.



(b) The insurer shall obtain a letter from the accountant, and file a copy with the Department, stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters, and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying the exceptions as he may believe appropriate.

(c) If an accountant who was the accountant for the immediately preceding filed Audited Financial Report is dismissed or resigns, the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Department with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding that event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this paragraph include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction.

(d) Disagreements contemplated by this subsection are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter, and if not, stating the reasons for which he does not agree; and the insurer shall furnish the responsive letter from the former accountant to the Department together with its own.

(7) Qualifications of Independent Certified Public Accountant

(a) The Department shall not recognize any person or firm as a qualified independent Certified Public Accountant that is not in good standing with the licensing authority or accrediting authority for Certified Public Accountants in all states in which the accountant practices, or for a Canadian or British company, that is not a chartered accountant.

(b) Except as otherwise provided herein, an independent Certified Public Accountant shall be recognized as qualified as long as he or she prepares reports, filings, and statements as required by the Florida Insurance Code, and conforms to the standards of his or her profession as contained in the Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Florida Board of Public Accountancy, or similar code.

(c) A partner or other person responsible for rendering a report may not act in that capacity for more than seven (7) consecutive years. Following any period of service that person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Department for relief from the above rotation requirement on the basis of a determination by the Department that the accountant is exercising independent judgment that is not unduly influenced by the insurer, considering the following factors:






(d) The Department shall not recognize as a qualified independent Certified Public Accountant, nor accept any annual Audited Financial Report prepared in whole or in part by any natural person who:

1. Has been found guilty of, or has pleaded guilty or nolo contendere to, any felony or crime punishable by imprisonment of one year or more under the law of the United States or any state thereof or under the law of any other country, which involves moral turpitude, without regard to whether a judgment of conviction has been entered by the court having jurisdiction in such case;

2. Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or

3. Has failed to detect or disclose material information in previous reports filed under the provisions of this rule.

(e) In accordance with the provisions of Section 624.307 and .324, Florida Statutes, and in its own rules of departmental practice, the Department shall conduct a hearing to determine whether a Certified Public Accountant is qualified if Department records do not contain sufficient information to demonstrate that the Certified Public Accountant is qualified. Considering the evidence presented, the Department shall conclude that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this rule, if the accountant fails to meet the qualifications and other requirements of this rule. If the accountant is found to be not qualified, the Department shall require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this rule. Upon determination by the Department that the accountant is not qualified to express an opinion on the financial statements in the annual audited financial report made pursuant to this rule the insurer may request a hearing pursuant to Section 120.57, Florida Statutes.

(8) Consolidated or Combined Audits

(a) An insurer may make written application to the Department for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves, and the insurer cedes all of its direct and assumed business to the pool. In these cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

1. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

2. Amounts for each insurer subject to this section shall be stated separately.

3. Noninsurance operations may be shown on the worksheet on a combined or individual basis.

4. Explanations of consolidating and eliminating entries shall be included.

5. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.



(b) 1. The application for approval to consolidate is required each year, and must be filed with the Department prior to the end of the calendar year for which the approval is being granted, except that applications for approval will be accepted after the end of such calendar year subject to the imposition of an administrative fine on each insurer involved in such application as provided for in Section 624.4211(2), Florida Statutes.

2. The amount of the fine shall be $50 per day for each day beyond the end of the calendar year, not to exceed an aggregate amount of $10,000 for the group of insurers requesting permission to file on a consolidated basis.

(c) Approval to consolidate or combine statements shall be granted unless the Department makes a specific finding that approval would prevent the Department from carrying out its statutory responsibilities.

(9) Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to subsection (5), above, shall be examined by an independent Certified Public Accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to the other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent Certified Public Accountant deems necessary.

(10) Notification of Adverse Financial Condition

(a) The insurer required to furnish the annual Audited Financial Report shall require the independent Certified Public Accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent Certified Public Accountant that the insurer has materially misstated its financial condition as reported to the Department as of the balance sheet date currently under examination, or that the insurer does not meet the minimum capital and surplus requirement of the Florida Insurance Code as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Department within five (5) business days of receipt of said report and shall provide the independent Certified Public Accountant making the report with evidence of the report being furnished to the Department. If the independent Certified Public Accountant fails to receive the evidence within the required five (5) business day period, the independent Certified Public Accountant shall furnish to the Department a copy of its report within the next five (5) business days.

(b) An independent public accountant shall not be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with the above paragraph.

(c) If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this rule, becomes aware of facts which might have affected his report, the accountant shall report those facts to the Department and the insurer within ten (10) calendar days of discovery.

(11) Report and Significant Deficiencies in Internal Controls

In addition to the annual Audited Financial Statements, each insurer shall furnish the Department with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. The Report on Internal Control Systems of the insurer shall be filed with the annual Audited Financial Report as required in subsection (4), above. The insurer is required to provide a description of



remedial actions taken or proposed to correct significant deficiencies, if said actions are not described in the accountant’s report.

(12) Accountant’s Letter of Qualifications

(a) The accountant shall furnish a letter to the insurer in connection with, and for inclusion in, the filing of the annual Audited Financial Report.

(b) The letter shall state:

1. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and the Rules of Professional Conduct of the Florida Board of Public Accountancy, or similar code.

2. The background and experience in general, and the experience in audits of insurers, of the staff assigned to the engagement and whether each is an independent Certified Public Accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing his or her staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

3. That the accountant understands the annual Audited Financial Report, and his opinion thereon will be filed in compliance within this rule, and that the Department will be relying on this information in the monitoring and regulation of the financial position of insurers.

4. That the accountant consents to the requirements of subsection (13), below, and that the accountant consents and agrees to make the workpapers as defined in subsection (13), below, available for review by the Department.

5. A representation that the accountant is properly licensed by an appropriate state licensing authority.

6. A representation that the accountant is in compliance with the requirements of subsection (7), above.

(13) Definitions, Availability, and Maintenance of CPA Workpapers

(a) Workpapers are the records kept by the independent Certified Public Accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers accordingly may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the independent Certified Public Accountant in the course of his examination of the financial statements of an insurer, and which support his opinion thereof.

(b) Every insurer required to file an Audited Financial Report pursuant to this rule shall require the accountant to make available for review by the Department examiners all workpapers prepared in the conduct of his examination, and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Department. The insurer shall require that the accountant retain the audit workpapers and communications until the Department has filed a Report on Examination covering the period of the audit, but no less than seven (7) years from the date of the audit report.



(c) In the conduct of the aforementioned periodic review by the Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department. The reviews by the Department examiners shall be considered investigations, and all working papers and communications obtained during the course of the investigations shall be afforded the same confidentiality as other examination workpapers generated by the Department until the Report of Examination is filed by the Department.

(14) Exemptions and Effective Dates

(a) Upon written application of any insurer, the Department shall grant an exemption from compliance with the filing of an annual audited financial report received by the Department by March 1 of the year following the calendar year to which the application applies if the Department finds, upon review of the application, that the insurer is under an order of receivership, conservatorship, rehabilitation, or is in another delinquency proceeding by the public insurance supervising official of any state, and the insurer has been granted an exemption from filing an annual audited financial report by its state of domicile. An exemption shall be granted for one year only. Exemptions for future years require additional applications. Within ten (10) days from a denial of an insurer’s written request for an exemption from this rule, the insurer may request in writing a hearing on its application for an exemption. The hearing shall be held in accordance with Section 120.57, Florida Statutes, and the Department’s rules on administrative practice.

(b) All authorized insurers shall comply with this rule for the year ending December 31, 1991, and each year thereafter unless the Department permits otherwise.

(15) Canadian and British Companies

(a) In the case of Canadian and British insurers, the annual Audited Financial Report shall be defined as the annual statement of total business on the form filed by the companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

(b) For these insurers, the letter required in subsection (6), above, shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Department pursuant to subsection (4), above, and shall affirm that the opinion expressed is in conformity with these requirements.



GEORGIA REGULATIONS

Rules of the Comptroller General Chapter 120-2-60 — CPA Annual Audited Financial Reports

120-2-60-.01 Authority

This rule is promulgated by the Commissioner of Insurance pursuant to § 33-2-9 and 33-3-21 of the Georgia Insurance Code.

120-2-60-.02 Purpose and Scope

(1) The purpose of this rule is to improve the Georgia Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(2) Every insurer (as defined in 120-2-60-.03) shall be subject to this rule. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

(3) Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this rule if:

(a) A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in 120-2-60-.04 and .11 and .12, respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance); or

(b) A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in 120-2-60-.10.

(4) This rule shall not prohibit, preclude or in any way limit the Commissioner of Insurance from ordering and/or conducting and/or performing examinations of insurers under the rules and regulations of the Georgia Department of Insurance and the practices and procedures of the Georgia Department of Insurance.

120-2-60-.03 Definitions

(1) “Audited financial report” means and includes those items specified in 120-2-60-.05 of this rule.

(2) “Accountant” and “Independent Certified Public Accountant” mean an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.



(3) “Insurer” means a licensed insurer as defined in Section 33-3-2(a) of the Georgia Insurance Code.

120-2-60-.04 Filing and Extensions for Filing of Annual Audited Financial Reports

(1) All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

(2) Extensions of the June 1 filing date may be granted by the Commissioner for thirty (30) day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

120-2-60-.05 Contents of Annual Audited Financial Report

(1) The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

(2) The annual Audited Financial Report shall include the following:


(b) Balance sheet reporting admitted assets, liabilities, capital and surplus;

(c) Statement of operations;

(d) Statement of cash flows;

(e) Statement of changes in capital and surplus;

(f) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

1. A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to O.C.G.A. § 33-3-21 of the Georgia Insurance Code with a written description of the nature of these differences;

2. A summary of ownership and relationships of the insurer and all affiliated companies; and

(g) The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.)



120-2-60-.06 Designation of Independent Certified Public Accountant

(1) Each insurer required by this rule to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this rule as the “accountant” ) retained to conduct the annual audit set forth in this rule. Insurers not retaining an independent certified public accountant on the effective date of this rule shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event.

120-2-60-.07 Qualifications of Independent Certified Public Accountant

(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(2) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Georgia Board of Public Accountancy, or similar code.

(3) No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted;




1. The requirements of this paragraph shall become effective two (2) years after the enactment of this rule.



(4) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:

(a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

(b) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or

(c) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this rule.

(5) The Commissioner of Insurance, as provided in Chapter 2 of Title 33 of the Official Code of Georgia Annotated and the applicable Rules and Regulations of the Georgia Insurance Department, may hold a hearing to determine whether the annual Audited Financial Report complies with this Regulation and whether the Report of Independent Certified Public Accountant accurately reflects the financial condition of the insurer.

120-2-60-.08 Consolidated or Combined Audits


(a) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet;

(b) Amounts for each insurer subject to this section shall be stated separately;

(c) Noninsurance operations may be shown on the worksheet on a combined or individual basis;

(d) Explanations of consolidating and eliminating entries shall be included; and

(e) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

120-2-60-.09 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to 120-2-60-.05 hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with Generally Accepted Auditing Standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

120-2-60-.10 Notification of Adverse Financial Condition

(1) The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that



the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Georgia Insurance Code as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

(2) If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this rule, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

120-2-60-.11 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions” ) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

120-2-60-.12 Accountant’s Letter of Qualifications


(a) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules and Professional Conduct of the Georgia Board of Public Accountancy, or similar code;

(b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

(c) That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this rule and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

(d) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and



(e) A representation that the accountant is in compliance with the requirements of 120-2-60-.07 of this rule.

120-2-60-.13 Definition, Availability and Maintenance of CPA Workpapers

(1) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

(2) Every insurer required to file an Audited Financial Report pursuant to this rule may be requested to make available for review by Department examiners all workpapers prepared in the examination of the insurer and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer may be requested by the Department to retain the audit workpapers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

(3) In the conduct of the aforementioned periodic review by the Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department.

120-2-60-.14 Exemptions and Effective Dates

(1) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this rule if the Commissioner finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this rule, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be conducted in accordance with Chapter 2 of Title 33 of the Official Code of Georgia Annotated and the applicable Rules and Regulations of the Georgia Department of Insurance.

(2) Domestic insurers retaining a certified public accountant on the effective date of this rule who qualify as independent shall comply with this Rule for the year ending December 31, 1993 and each year thereafter unless the Commissioner permits otherwise.

(3) Domestic insurers not retaining a certified public accountant on the effective date of this rule who qualify as independent may meet the following schedule for compliance unless the Commissioner permits otherwise.

(a) As of December 31, 1993, file with the Commissioner:

1. Report of independent certified public accountant;

2. Audited balance sheet;

3. Notes to audited balance sheet.



(b) For the year ending December 31, 1993 and each year thereafter, such insurers shall file with the Commissioner all reports required by this rule.

(4) Foreign insurers shall comply with this Rule for the year ending December 31, 1993 and each year thereafter, unless the Commissioner permits otherwise.

120-2-60-.15 Canadian and British Companies

(1) In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

(2) For such insurers, the letter required in 120-2-60-.06 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to 120-2-60-.04 and shall affirm that the opinion expressed is in conformity with such requirements.

120-2-60-.16 Severability Provision

If any section or portion of a section of this rule or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the rule or the applicability of such provision to other persons or circumstances shall not be affected thereby.



HAWAII STATUTES

Insurance Laws TITLE 24–Chapter 431

Article 3—Insurers General Requirements Article 19—Captive Insurance Companies Hawaii Insurance Rules and Regulations

Title 16, Chapter 17—Captive Insurance Companies

431:3-301 Annual Filings

(a) Annually on or before March 1, or such day subsequent thereto as the commissioner upon request and for cause may specify, the following documents shall be filed with the commissioner:

(1) By each insurer:

A. A true statement of its financial condition, transactions, and affairs as of the immediately preceding December 31, shall be filed using the National Association of Insurance Commissioners’ annual statement blank plus any additional information required by the commissioner. The annual statement shall be prepared in accordance with the National Association of Insurance Commissioners’ Annual Statement Instructions, following the practices and procedures prescribed by the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manuals. The reported information shall be verified by oaths of at least two of the insurer’s principal officers, or the attorney-in-fact in the case of a reciprocal insurer, or the United States manager in the case of an alien insurer. The statement of an alien insurer shall relate only to its transactions and affairs in the United States.

431:3-302.5 Audits of Financial Statements

(a) Annually on or before June 1, or such later date as the Commissioner upon request or for cause may specify, each domestic insurer shall file an audit by a designated independent certified public accountant or accounting firm of the financial statements reporting the financial condition and the results of operations of the insurer. The insurer shall notify the Commissioner in writing of the name and address of the person or firm retained to conduct the annual audit within sixty days. The Commissioner may disapprove the insurer’s designation within fifteen days of receipt of the insurer’s notice, and the insurer shall be required to designate another independent certified public accountant or accounting firm.

(b) An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies that utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool.

(c) The audit required in subsection (a) and the audited consolidated or combined financial statements required in subsection (b) shall be prepared in accordance with the National Association of Insurance Commissioners’ Annual Statement Instructions, following the practices and procedures prescribed by the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manuals.



(d) Any insurer failing or refusing to submit the annual audit or any of the documents required under subsection (a) on or before June 1, or later date as the commissioner upon request or for cause may specify, shall be liable for a penalty in an amount not less than $100 and not more than $500 for each day of delinquency. The Commissioner may suspend or revoke the certificate of authority of any insurer who fails to file any of the documents required in subsection (a).

Title 24, Chapter 431, Article 19 – Captive Insurance Companies

431:19-107 Statement of Financial Condition

(a) Each captive insurance company other than a class 3 captive insurance company shall submit to the commissioner a statement of financial condition written according to generally accepted accounting principles, or other comprehensive basis of accounting as may be deemed appropriate by the commissioner, and audited by an independent certified public accountant, or other qualified person as deemed appropriate by the Commissioner, on or before the last day of the sixth month following the end of the company’s fiscal year.

(b) Each class 3 captive insurance company shall annually file with the commissioner the following:

(1) Annual statement and audit:

(A) On or before March 1, or such day subsequent thereto as the commissioner upon request and for cause may specify, an annual statement using the National Association of Insurance Commissioners’ annual statement blank plus any additional information required by the commissioner, which shall be a true statement of its financial condition, transactions, and affairs as of the immediately preceding December 31. The reported information shall be verified by oaths of at least two of the captive’s principal officers;

(B) On or before June 1, or such day subsequent thereto as the commissioner upon request and for cause my specify, an audit by a designated independent certified public accountant or accounting firm of the financial statements reporting the financial condition and results of the operation of the captive;

(C) The annual statement and audit shall be prepared in accordance with the National Association of Insurance Commissioners’ annual statement instructions, following the practice and procedures prescribed by the National Association of Insurance Commissioners’ practices and procedures manuals. Each risk retention group shall also comply with section 431:3-302; and

(2) On or before each March 1, or such day subsequent thereto as the commissioner upon request and for cause may specify, a risk-based capital report in accordance with section 431:3-402; provided that a class 3 captive insurance company shall not be required to file risk-based capital reports with the National Association of Insurance Commissioners.

(c) The statements required to be filed in subsections (a) and (b) shall include but not be limited to actuarially appropriate reserves for the business underwritten. An actuarial opinion regarding reserves for the business underwritten by the company shall be included in the audited statements, except that the actuarial opinion for class 3 companies shall be filed with the annual statement required under subsection (b), on or before March 1 each year. The actuarial opinion shall be given by a member of the American Academy of Actuaries or other qualified loss reserve specialist as defined in the annual statement adopted by the National Association of Insurance Commissioners; provided that all captive



insurance companies, other than a class 3 company, may, alternatively, utilize an actuarial opinion prepared by a loss reserve specialist deemed appropriate by the commissioner.

(d) The commissioner may prescribe the format and frequency of other reports which may include, but shall not be limited to, summary loss reports and quarterly financial statements.

(e) The commissioner may suspend or revoke the certificate of authority or fine any captive insurer that fails to file any of the documents required by subsections (a) and (b). The fine shall be not more than $500 per day past the due date.

(f) Each branch captive insurance company shall file with the commissioner copies of all reports and financial statements required to be filed by the outside captive insurance company of the branch captive insurance company under the laws of the jurisdiction in which the outside captive insurance company is domiciled. The copies of the reports and financial statements shall be certified under oath by two officers of the outside captive insurance company and shall be filed with the commissioner no later than thirty days after the reports and financial statements are filed with the insurance regulator of the domicile of the outside captive insurance company. In addition to, and at the same time as the foregoing filings with the commissioner, the outside captive insurance company shall file a statement signed by two of its executive officers, one of which must be the president or chief financial officer, setting forth the gross premiums written, reinsurance ceded and accepted, and reserves and other liabilities associated with the insurance business written through the branch captive insurance company in this State.

If the commissioner is not satisfied that the reports, financial statements, and statement required to be filed under this subsection fairly and adequately describe the financial condition of the outside captive insurance company and the business underwritten through the branch captive insurance company in this State, the commissioner may require the branch captive insurance company to file an annual statement pursuant to subsection (a) within a reasonable time after notification of such requirement.

Title 16, Chapter 17 – Captive Insurance Companies

16-17-10 Notification of Adverse Financial Condition

A captive shall require its certified public accountant to immediately notify the executive officers and board of directors of the captive in writing of any determination by the certified public accountant that the captive has materially misstated its financial condition or that, since its last financial report the captive has experienced results which lead the certified public accountant to the determination that the captive is in adverse financial condition. The captive insurance manager shall notify the commissioner in writing within five working days of receipt thereof.

16-17-12 Availability and Maintenance of Working Papers of the Independent Certified Public Accountant

(a) Each captive shall require its independent certified public accountant to make available for review by the commissioner or appointed agent the work papers prepared in the conduct of the annual statement and the audit of the captive. The captive shall require that the accountant retain the audit work papers for a period of not less than five years after conclusion of transactions to which they relate.

(b) The review conducted in (a) above shall be considered to be an investigation and all work papers obtained during the course of that investigation shall be confidential in accordance with the captive insurance code. The captive shall require that the certified public accountant provide photocopies of any and all work papers that the commissioner deems relevant. These copies may be retained by the insurance division.



(c) “Work papers” as referred to in this section include, but are not limited to, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of company records, or other documents prepared or obtained by the accountant and employees in the conduct of their examination of the captive.



IDAHO REGULATIONS

IDAPA 18—Title 01 Chapter 62 [IDAPA 18.01.62] — Annual Audited Financial Reports

120-2-60-.16 Legal Authority

This Rule is promulgated by the Director of Insurance pursuant to the authority provided in Chapter 2, Title 41, Idaho Code and Chapter 52, Title 67, Idaho Code.

IDAPA 18.01.62 § 001 Title and Scope

The purpose of this Rule is to improve the Idaho Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers. Every insurer as defined in Section 004 shall be subject to this Rule chapter. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for such year (unless the Director makes a specific finding that compliance is necessary for the Director to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt. Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Director to be substantially similar to the requirements herein, are exempt from this Rule if:

01. Filing of Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and Accountant’s Letter of Qualification. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Director in accordance with the filing dates specified in Sections 011, 018, and 019 respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance).

02. Filing of Notification of Adverse Financial Condition Report. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Director within the time specified in Section 017. This Rule chapter shall not prohibit, preclude or in any way limit the Director of Insurance from ordering, conducting and/or performing examinations of insurers pursuant to the provisions of Title 41 of the Idaho Code and the rules and of the Idaho Department of Insurance and the practices and procedures of the Idaho Department of Insurance.

IDAPA 18.01.62 § 004 Definitions

01. Audited Financial Report. “Audited financial report” means and includes those items specified in Section 012 of this chapter.

02. Accountant and Independent Certified Public Accountant. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPA’s and in all states in which they are licensed to practice: for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

03. Insurer. “Insurer” means a licensed insurer as defined in Section 41-110, Idaho Code; hospital and professional service corporations as defined in Chapter 34, Title 41, Idaho Code; hospital liability trusts as defined in Chapter 37, Title 41, Idaho Code; managed care organizations as defined in Chapter 39, Title 41, Idaho Code; self-funded health care plans as defined in Chapter 40, Title 41,



Idaho Code; county mutuals as defined in Chapter 31, Title 41, Idaho Code; reciprocal insurers as defined in Chapter 29, Title 41, Idaho Code; fraternal benefit societies as defined in Chapter 31, Title 41, Idaho Code; and authorized/accredited reinsurers as defined in Section 41-514(b), Idaho Code.

04. Indemnification. “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing or other misrepresentations made by the insurer or its representatives.(5-3-03)

IDAPA 18.01.62 § 011 Filing and Extensions for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Director on or before June 1 for the year ended December 31 immediately preceding. The Director may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer. Extensions of the June 1 filing date may be granted by the Director for thirty (30) day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Director of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Director to make an informed decision with respect to the requested extension.

IDAPA 18.01.62 § 012 Contents of Annual Audited Financial Report

The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile. The Annual Audited Financial Report shall include the following:

01. Report of Certified Public Accountant, Report of Independent Certified Public Accountant;

02. Balance Sheet. Balance sheet reporting admitted assets, liabilities, capital and surplus;

03. Statement of Operations. Statement of operations;

04. Statement of Cash Flows. Statement of cash flows;

05. Statement of Changes in Capital and Surplus. Statement of changes in capital and surplus;

06. Notes to Financial Statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and NAIC Accounting Practices and Procedures Manual. The notes shall also include: a reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Section 41-335, Idaho Code, or other applicable section of Idaho Code with a written description of the nature of these differences.

07. Form of Financial Statements. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Director, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.)



IDAPA 18.01.62 § 013 Designation of Independent Certified Public Accountant

Each insurer required by this Rule to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the Director in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this rule as the “accountant”) retained to conduct the annual audit set forth in this Rule. Insurers not retaining an independent certified public accountant on the effective date of this Rule shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the Director stating that the accountant is aware of the provisions of the Insurance Code and the Rules of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Director with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this Rule include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Director together with its own.

IDAPA 18.01.62 § 014 Qualifications of Independent Certified Public Accountant

01. In Good Standing. The Director shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

02. Conformance. With Ethical and Professional Standards. Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Idaho Board of Public Accountancy, or similar code.

03. Capacity to Render Report for Consecutive Years. No partner or other person responsible for rendering a report may act in the capacity for more than seven (7) consecutive years. Following period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Director for relief from the above rotation requirement on the basis of unusual circumstances. The Director may consider the following factors in determining if the relief should be granted:



a. Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

b. Premium volume of the insurer; or

c. Number of jurisdictions in which the insurer transacts business. The requirements of Section 014.03 shall become effective two (2) years after the enactment of this rule chapter.

04. Grounds for Not Recognizing as Qualified. The Director shall not recognize as a qualified independent certified public accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:

a. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

b. Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule;

c. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this rule; or

d. Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.

05. Hearings. The Director of Insurance may, as provided in Chapter 52, Title 67 and Chapter 2, Title 41, Idaho Code, hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this rule and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this rule chapter.

06. Delinquency Proceeding. A qualified independent certified public accountant may enter into an agreement with an insurer to have disputed relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under Title 41, Chapter 33, Idaho Code, the mediation or arbitration provisions shall operate at the option of the statutory successor.

IDAPA 18.01.62 § 015 Consolidated or Combined Audits

An insurer may make written application to the Director for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

01. Worksheet. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

02. Separate Amounts. Amounts for each insurer subject to this section shall be stated separately.

03. Noninsurance Operations. Noninsurance operations may be shown on the worksheet on a combined or individual basis.



04. Explanations of Consolidating and Eliminating Entries. Explanations of consolidating and eliminating entries shall be included.

05. Reconciliation. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statement of the insurer.

IDAPA 18.01.62 § 016 Scope of Audit and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 012 hereof shall be audited by an independent certified public accountant, conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

IDAPA 18.01.62 § 017 Notification of Adverse Financial Condition

An insurer required to furnish an annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Director as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of the Idaho Insurance Statute as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Director within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Director. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Director a copy of its report within the next five (5) business days. No independent public accountant shall be liable in any manner to any person for any statement made in connection with Section 017 if such statement is made in good faith in compliance with Section 017. If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this rule, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

IDAPA 18.01.62 § 018 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Director with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in An Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. A “none” report should be issued if the accountant does not identify significant deficiencies. The Report on Significant Deficiencies in Internal Controls is to be filed with the Audited Financial Report. The insurer is required to provide a description of the remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

IDAPA 18.01.62 § 019 Accountant’s Letter of Qualification


01. Independence. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and



pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Idaho Board of Public Accountancy, or similar code.

02. Background and Experience. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

03. Compliance with Rule. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this rule and that the Director will be relying on this information in the monitoring and regulation of the financial position of insurers.

04. Consent to Requirements of Section 020. That the accountant consents to the requirements of Section 020 of this rule and that the accountant consents and agrees to make available for review by the Director, his designee or his appointed agent, the work papers, as defined in Section 020.

05. Properly Licensed. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

06. Compliance with Section 014. A representation that the accountant is in compliance with the requirements of Section 014 of this rule.

IDAPA 18.01.62 § 020 Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Work papers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof. Every insurer required to file an Audited Financial Report pursuant to this rule, shall require the accountant to make available for review by the Department examiners, all work papers prepared in the conduct of the accountant’s examination and any communications related to the audit between the accountant and the insurer, at the office of the insurer, at the Insurance Department or at any other reasonable place designated by the Director. The insurer shall require that the accountant retain the audit work papers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

In the conduct of the aforementioned periodic review by the Department examiners, it shall be agreed that photocopies of pertinent audit work papers may be made and retained by the Department. Such reviews by the Department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other investigative work papers generated by the Department.

IDAPA 18.01.62 § 021 Exemptions and Effective Dates

Upon written application of any insurer, the Director may grant an exemption from compliance with this rule if the Director finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this rule chapter, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall



be held in accordance with the Rules of the Idaho Department of Insurance pertaining to administrative hearing procedures. Domestic insurers retaining a certified public accountant on the effective date of this rule chapter who qualify as independent shall comply with this rule chapter for the year ending December 31, 1992, and each year thereafter unless the Director permits otherwise. Domestic insurers not retaining a certified public accountant on the effective date of this rule who qualify as independent may meet the following schedule for compliance unless the Director permits otherwise.

01. Effective Date. As of December 31, 1992, file with the Director:

a. Report of independent certified public accountant;

b. Audited balance sheet;

c. Notes to audited balance sheet.

02. Effective Date. For the year ended December 31, 1993, and each year thereafter, such insurers shall file with the Director all reports required by this rule. Foreign insurers shall comply with this Rule for the year ending December 31, 1992, and each year thereafter, unless the Director permits otherwise.

IDAPA 18.01.62 § 022 Canadian and British Companies

01. Annual Audited Financial Report. In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

02. Letter Required in Section 013. For such insurers, the letter required in Section 013 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Director pursuant to Section 011 and shall affirm that the opinion expressed is in conformity with such requirements.

IDAPA 18.01.62 § 023 Severability Provision

If any section or portion of a section of this rule chapter or the applicability thereof to any person or circumstances is held invalid by a court, the remainder of the rule chapter or the applicability of such provision to other persons or circumstances shall not be affected thereby.



ILLINOIS REGULATIONS

TITLE 50, Chapter I, Subchapter l Part 925. — Annual Audited Financial Report

50 Ill. Adm. Code 925.10 Authority

This Part is promulgated by the Director of Insurance pursuant to Sections 132.1 through 132.7, 136, 401, and 402 of the Illinois Insurance Code [215 ILCS 5/132.1 through 132.7, 136, 401, and 402] and Section 2-7 of the Health Maintenance Organization Act [215 ILCS 125/2-7] and Section 2007 of the Limited Health Service Organization Act [215 ILCS 130/2007].

50 Ill. Adm. Code 925.20 Purpose and Scope

This Part shall not prohibit, preclude or in any way limit the Director from ordering and/or conducting and/or performing examinations of insurers under his jurisdiction in the operations, practices, procedures, or other matters including financial condition and operations of such insurers. Such examinations shall be conducted as currently established and/or performed or to be established and/or performed under the Statutes of the State of Illinois, the Rules of the Illinois Department of Insurance and the practices and procedures of the Illinois Department of Insurance. The purpose of this Part is to improve the Director’s surveillance of the financial condition of insurers by requiring an annual audit by accountants of the financial statements reporting the financial position and the results of operations of insurers. Every insurer, as defined in Section 925.30 of this Part, shall be subject to this Part except those insurers exempt under Section 925.140 of this Part.

50 Ill. Adm. Code 925.120 Definition, Availability and Maintenance of Accountant Workpapers

a) Workpapers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the accountant in the course of its audit of the financial statements of an insurer and which support its opinion thereof.

b) Every insurer required to file an Annual Audited Financial Report pursuant to this Part shall require the accountant to make available for review by the Director’s examiners all Workpapers prepared in the conduct of its examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the offices of the Director, or at any other reasonable place designated by the Director. The insurer shall require that the accountant retain the audit Workpapers and communications until the Director has filed a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

c) In the conduct of the aforementioned periodic review by the Director’s examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Director’s examiners. Such review by the Director’s examiners shall be considered an investigation and all working papers and communications obtained during the course of such investigation shall be afforded the same confidentiality as other examination workpapers generated by the Director’s examiners.

50 Ill. Adm. Code 925.40 Filing and Extensions for Filing of Annual Audited Financial Reports

a) All insurers shall have an annual audit performed by an accountant and shall file an Annual Audited Financial Report with the Director on or before June 1 for the year ended December 31 immediately



preceding. The Director may require an insurer to file an Annual Audited Financial Report earlier than June 1 with ninety (90) days advance notice to the insurer.

b) Extensions of the June 1 filing date may be granted by the Director for thirty (30) day periods upon a showing by the insurer and its accountant of the reasons for requesting such extension and a determination by the Director of good cause for an extension. Examples of “good cause” include, but are not limited to, an Act of God or fortuitous or unintentional destruction of documents. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Director to make an informed decision with respect to the requested extension.

50 Ill. Adm. Code 925.50 Contents of Annual Audited Financial Report

a) The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the report year in conformity with statutory accounting practices for preparation of the annual statement as described in Section 136 of the Illinois Insurance Code, Sections 2-7 of the Health Maintenance Organization Act, Section 2007 of the Limited Health Service Organization Act, or as otherwise permitted by the insurance regulatory authority of the insurer’s state of domicile.

b) The Annual Audited Financial Report shall include the following:

1) Opinion of the accountant.

2) Balance sheet reporting admitted assets, liabilities, capital and surplus or net worth.

3) Statement of operations or statement of revenues and expenses and net worth.

4) Statement of cash flows.

5) Statement of changes in capital and surplus or net worth.

6) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

A) a reconciliation of differences, if any, between the Annual Audited Financial Report and the Annual Statement filed pursuant to Section 136 of the Illinois Insurance Code, Sections 2-7 of the Health Maintenance Organization Act, or Section 2007 of the Limited Health Service Organization Act with a written description of the nature of these differences.

B) a summary of ownership and relationships of the insurer and all affiliated companies.

7) The financial statements included in the Annual Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Director and:

A) The financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an Annual Audited Financial Report, the comparative data may be omitted.)



B) Amounts may be rounded to the nearest thousand dollars.

8) Supplementary Data and Information. This will include any additional clarifying information or data which the Director may require to be disclosed.

9) In the case of Canadian and British insurers, the Annual Audited Financial Report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant. For such insurers, the letter required by Section 925.60 of this Part shall state that the accountant is aware of the requirements relating to the Annual Audited Financial Report filed with the Director pursuant to Section 925.40 and shall affirm that the opinion expressed is in conformity with such requirements.

50 Ill. Adm. Code 925.60 Designation of Accountant

a) Each insurer required by this Part to file an Annual Audited Financial Report must, within sixty (60) days after becoming subject to such requirement, register with the Director in writing the name and address of the accountant retained to conduct the annual audit set forth in this Part. Insurers not retaining an accountant on the effective date of this Part shall register the name and address of their retained accountant not less than six (6) months before the date when the first audited financial report is to be filed.

b) If an accountant, who was not the accountant for the immediately preceding filed Annual Audited Financial Report, is engaged to audit the insurer’s financial statements, the insurer shall within thirty (30) days after the date the accountant is engaged notify the Director of this event. The insurer shall obtain a letter from the accountant and file a copy with the Director stating that the accountant is aware of the provisions of the Illinois Insurance Code and/or Health Maintenance Organization Act and/or the Limited Health Service Organization Act and the Rules and Regulations of the insurance regulatory authority of the state of domicile that relate to accounting and financial matters and affirming that the accountant will express its opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance regulatory authority, specifying such exceptions an it may believe appropriate.

c) If an accountant who was the accountant for the immediately preceding filed Annual Audited Financial Report is dismissed or resigns, the insurer shall within five (5) business days notify the Director of this event. The insurer shall also furnish the Director with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreement in connection with its opinion. The disagreements required to be reported in response to this subsection include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this subsection are those that occur at the decision making level, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish it a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which it does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Director together with its own.



50 Ill. Adm. Code 925.70 Qualifications of Accountant

a) The Director shall not recognize any person or firm as a qualified accountant that is not in good standing with the American Institute of CPA’s and in all states in which the accountant is licensed to practice or, for a Canadian or British company, that is not a chartered accountant.

b) Except as otherwise provided in this Section, an accountant shall be recognized as qualified as long as he or she conforms to the standards of the profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Illinois Board of Public Accountancy, or similar code.

c) The requirements of this subsection (c) shall become effective for years beginning after December 31, 1994. No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Director for relief from the above rotation requirement on the basis of unusual circumstances. The Director may consider the following factors in determining if the relief should be granted:

1) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

2) Premium volume of the insurer; or

3) Number of jurisdictions in which the insurer transacts business.

d) The Director shall not recognize as a qualified accountant, nor accept any Annual Audited Financial Report prepared in whole or in part by, any natural person who:

1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

2) Has been found to have violated the insurance laws of this State with respect to any previous reports submitted under this Part; or

3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this Part.

e) The Director, as provided in Section 401 of the Code [215 ILCS 5/401], may as provided in Administrative Hearing Procedures (50 Ill. Adm. Code 2402) hold a hearing to determine whether an accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing an opinion on the financial statements in the Annual Audited Financial Report made pursuant to this Part and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this Part.

50 Ill. Adm. Code 925.80 Consolidated or Combined Audits

a) An insurer may make written application to the Director for approval to file a consolidated or combined Annual Audited Financial Report in lieu of separate Annual Audited Financial Reports if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent



reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report as follows:

1) Amounts shown on the consolidated or combined Annual Audited Financial Report shall be shown on the worksheet.

2) Amounts for each insurer subject to this Section shall be stated separately.

3) Noninsurance operations may be shown on the worksheet on a combined or individual basis.

4) Explanations of consolidating and eliminating entries shall be included.

5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

b) The Director shall require any insurer to file separate Annual Audited Financial Reports although permission had previously been given to file on a consolidated or combined basis if the Director determines the reasons and/or circumstances given for approval of the consolidated audit, pursuant to subsection (a), no longer exist.

50 Ill. Adm. Code 925.90 Scope of Audit and Report of Accountant

a) Financial statements furnished pursuant to Section 925.50 of this Part shall be examined by an accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiners’ Handbook promulgated by the National Association of Insurance Commissioners as the accountant deems necessary.

b) Property and casualty insurers shall require the accountant to subject the current “Schedule P - Part 1” (excluding those amounts related to bulk and IBNR reserves and claim counts) to the auditing procedures applied in the audit of the current statutory financial statements to determine whether Schedule P - Part 1 is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole. It is expected that the auditing procedures applied by the accountant to the claim loss and loss adjustment expense data from which Schedule P - Part 1 is prepared would be applied to activity that occurred in the current calendar year (e.g., tests of payments on claims for all accident years that were paid during the current calendar year).

c) Life, accident, and health insurers shall require the accountant to subject the information included in the “Supplemental Schedule of Assets and Liabilities” and exhibits thereof to the auditing procedure applied in the audit of the current statutory financial statements to determine whether such information is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole and agrees to the insurer’s annual statement filed with the Department.

50 Ill. Adm. Code 925.100 Notification of Adverse Financial Condition

a) The insurer required to furnish the Annual Audited Financial Report shall require the accountant to report, in writing within five (5) business days, to the board of directors or its audit committee, any determination by the accountant that the insurer has materially misstated its financial condition as reported to the Director as of the balance sheet date currently under examination, or of any other determination that the insurer does not meet the minimum capital and surplus requirements of the



Illinois Insurance Code and the net worth requirements of the Health Maintenance Organization Act and the Limited Health Service Organization Act, as of that date.

b) An insurer who has received a report pursuant to subsection (a) above shall forward a copy of the report to the Director within five (5) business days after receipt of such report and shall provide the accountant making the report with evidence of the report being furnished to the Director. If the accountant fails to receive such evidence within the required five (5) business day period, the accountant shall furnish to the Director a copy of its report within the next five (5) business days.

c) No accountant shall be liable in any manner to any person for any statement made in connection with subsection (a) and (b) above if such statement is made in good faith in compliance with subsection (a) and (b) above.

d) If the accountant, subsequent to the date of the Annual Audited Financial Report filed pursuant to this Part, becomes aware of facts which might have affected its report, the Director notes the obligation of the accountant to take such action as prescribed in Volume l, Section AU561 of the Professional Standards of the American Institute of Certified Public Accountants as of June 1, 1986, with no later amendments or editions.

50 Ill. Adm. Code 925.110 Report on Internal Control

In addition to the Annual Audited Financial Report, each insurer shall furnish the Director with a written report prepared by the accountant stating its evaluation of the accounting procedures of the insurer and the insurer’s system of internal control, including any remedial action taken or proposed. The written report shall include a description of any significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (know as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. The written report shall be filed annually by the insurer with the Director, on or before June 1, along with the filing of the Annual Audited Financial Report. The insurer is required to provide a description of remedial actions taken of proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

50 Ill. Adm. Code 925.115 Accountant’s Letter of Qualifications

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the Annual Audited Financial Report, a letter stating:

a) That the accountant is independent with respect to the insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Illinois Board of Public Accountancy, or similar code.

b) The background and experience in general, and the experience in audits of insurers, of the staff assigned to the engagement and whether each is an accountant. Nothing within this Part shall be construed as prohibiting the accountant from utilizing such staff as deemed appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

c) That the accountant understands the Annual Audited Financial Report and its opinion thereon will be filed in compliance with this Part and that the Director will be relying on this information in the monitoring and regulation of the financial position of insurers.



d) That the accountant consents to the requirements of Section 925.120 of this Part and that the accountant consents and agrees to make available for review by the Director, the Director’s designee or the Director’s appointed agent the workpapers, as defined in Section 925.120.

e) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing of the American Institute of Certified Public Accountants.

f) A representation that the accountant is in compliance with the requirements of Section 925.70 of this Part.

50 Ill. Adm. Code 925.120 Definition, Availability and Maintenance of Accountant Workpapers

a) Workpapers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the accountant in the course of its audit of the financial statements of an insurer and which support its opinion thereof.

b) Every insurer required to file an Annual Audited Financial Report pursuant to this Part shall require the accountant to make available for review by the Director’s examiners all Workpapers prepared in the conduct of its examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the offices of the Director, or at any other reasonable place designated by the Director. The insurer shall require that the accountant retain the audit Workpapers and communications until the Director has filed a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

c) In the conduct of the aforementioned periodic review by the Director’s examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Director’s examiners. Such review by the Director’s examiners shall be considered an investigation and all working papers and communications obtained during the course of such investigation shall be afforded the same confidentiality as other examination workpapers generated by the Director’s examiners.

50 Ill. Adm. Code 925.140 Exemptions

a) Upon written application of any domestic insurer, the Director may grant an exemption from compliance with this Part if the Director finds, upon review of the application, that compliance with this Part would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time, and from time to time, for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this Part, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Rules of the Illinois Department of Insurance pertaining to administrative hearing procedures (50 Ill. Adm. Code 2402).

b) Foreign and alien insurers having total direct premiums written of less than $1,000,000 in any calendar year shall be automatically exempt from this Part for such year (unless the Director makes a specific finding that compliance is necessary for the Director to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.



c) Foreign or alien insurers filing audited financial reports in their state of domicile, pursuant to such domestic state’s requirement of audited financial reports which has been found by the Director to be substantially similar to the requirements of this Part, are exempt from this Part if:

1) A copy of the Annual Audited Financial Report, Report on Internal Control, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Director in accordance with the filing dates specified in Sections 925.40, 925.110 and 925.115 respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian dominion Department of Insurance).

2) A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Director within the time specified in Section 925.100.

50 Ill. Adm. Code 925.150 Severability Provision

If any Section or portion of a Section of this Part or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the Part or the applicability of such provision to other persons or circumstances shall not be affected thereby. This Part is effective July 21, 1975.



INDIANA STATUTES

Insurance Laws TITLE 27, Article 1


27-1-3.5-1 “Commissioner”

As used in this chapter, “Commissioner” refers to the insurance Commissioner appointed under IC 27-1-1-2.

27-1-3.5-2 “Domestic Insurer”

(a) As used in this chapter, “domestic insurer” means an insurer organized under the laws of Indiana.

(b) If a domestic insurer is a member of an “insurance holding company system” (as defined in IC 27-1-23-1), the term “domestic insurer” also includes:

(1) any person in immediate control of the domestic insurer; and

(2) any affiliate:

(A) in which the domestic insurer has invested; or

(B) that is indebted to the domestic insurer.

27-1-3.5-3 Independent Auditor

As used in this chapter, “independent auditor” means a certified public accountant or a certified public accounting firm that conducts an annual audit of a domestic insurer as required by this chapter.

27-1-3.5-3.5 “Significant Deficiency”

As used in this chapter, “significant deficiency” means a reportable condition described in the Professional Standards of the American Institute of Certified Public Accountants.

27-1-3.5-4 “Work Papers”

(a) As used in this chapter, “work papers” means the records kept by the independent auditor of the procedures followed, the tests performed, the information obtained, and the conclusions reached by the independent auditor’s audit of the financial statements of a domestic insurer.

(b) The term includes any audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents, and schedules or commentaries that:

(1) are prepared or obtained by the independent auditor in the course of any audit of the financial statements of a domestic insurer; and

(2) support the independent auditor’s opinion on the domestic insurer’s financial statements.

27-1-3.5-5 Exemptions

(a) Except as provided in subsections (b) and (c), this chapter applies to all domestic insurers.



(b) A domestic insurer that has:

(1) direct written premiums of less than one million dollars ($1,000,000) in any calendar year; and

(2) less than one thousand (1,000) policyholders or certificate holders of directly written policies nationwide at the end of a calendar year; is exempt from this chapter with respect to that year. However, the Commissioner may require compliance with this chapter upon a finding that compliance with this chapter is necessary for the Commissioner to carry out a statutory responsibility.

(c) A foreign or an alien insurer that files an audited financial report in another state or country pursuant to that state’s or country’s requirement for audited financial reports is exempt, with respect to the year of that audited financial report, from the requirement to file an audited financial report with the Commissioner under this chapter, if:

(1) the Commissioner has found the other state’s or country’s requirement for audited financial reports to be substantially similar to the requirements of this chapter;

(2) copies of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications filed with the other state or country are filed with the Commissioner in accordance with the filing dates set forth in Sections 8, 12, and 12.5 of this chapter; and

(3) a copy of a notification of an adverse financial condition report that is filed with the other state is filed with the Commissioner within the time specified in Section 11 of this chapter.

This subsection does not prevent the Commissioner from ordering, conducting, or performing examinations of foreign or alien insurers under the rules, regulations, and practices of the department.

27-1-3.5-6 Filing and Extensions for Filing of Report

(a) A domestic insurer shall have an audit by an independent auditor every year and shall file an audited financial report with the Commissioner every year before June 1 immediately following the December 31 that ends the year reported on in the financial report. The Commissioner may require a domestic insurer to file an audited financial report earlier than June 1 if the Commissioner gives the domestic insurer ninety (90) days advance notice of the earlier filing date.

(b) An extension of the June 1 filing date may be granted by the Commissioner for thirty (30) days upon a showing by the insurer and its independent auditor of the reasons for requesting the extension and a determination by the Commissioner that there is good cause for an extension. The request for an extension must be submitted in writing at least ten (10) days before the due date, and must include sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

27-1-3.5-7 Contents of Report

(a) The annual audited financial report filed by a domestic insurer under this chapter shall report:

(1) the financial position of the domestic insurer as of the end of the most recently ended calendar year; and



(2) the results of the domestic insurer’s operations, cash flow, and changes in capital and surplus for that year; in conformity with statutory accounting practices prescribed, or otherwise permitted, by the department of insurance.

(b) The financial statements included in the annual audited financial report filed by a domestic insurer under this chapter shall be examined by an independent auditor. The independent auditor shall conduct its examination of the domestic insurer’s financial statements in accordance with generally accepted auditing standards, and shall consider such other procedures illustrated in the Financial Condition Examiner’s Handbook published by the National Association of Insurance Commissioners as the independent auditor considers necessary.

(c) An annual audited financial report filed by a domestic insurer under this chapter must include the following:

(1) The report of the insurer’s independent auditor.

(2) A balance sheet reporting admitted assets, liabilities, capital, and surplus.

(3) A statement of operations.

(4) A statement of cash flow.

(5) A statement of changes in capital and surplus.

(6) Notes to financial statements. The notes must be those required by the National Association of Insurance Commissioners’ Annual Statement Instructions and any other notes required by statutory accounting practices, which must include the following:

(A) A reconciliation of differences, if any, between the financial statements included in the audited financial report and the annual statement filed by the insurer under IC 27-1-20-21, including a written description of the nature of these differences.

(B) A summary of the ownership and relationships of the domestic insurer and all affiliated companies.

(d) The financial statements included in a domestic insurer’s audited financial report shall be prepared in the same form, and using language and groupings substantially the same, as the relevant sections of the annual statement of the insurer filed with the Commissioner under IC 27-1-20-21.

(e) The financial statements included in a domestic insurer’s audited financial report must be comparative, presenting the amounts as of December 31 of the year of the report and comparative amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an audited financial report under this chapter, the comparative data may be omitted.

27-1-3.5-8 Designation of Independent Certified Public Accountant

(a) A domestic insurer that is required by this chapter to file annual audited financial reports shall, not more than sixty (60) days after becoming subject to the requirement, register in writing with the Commissioner the name and address of the independent auditor retained by the insurer to conduct the annual audits required by this chapter. The domestic insurer shall continuously ensure that the information provided to the Commissioner under this section is accurate, and shall inform the Commissioner in writing of any change in the identity or address of its independent auditor.



(b) A domestic insurer shall obtain a letter from its independent auditor that:

(1) states that the independent auditor is aware of the provisions of IC 27 and the administrative rules of the department of insurance that relate to auditing, accounting, and financial matters; and

(2) affirms that the independent auditor will express its opinion on the financial statements of the domestic insurer in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the department, specifying such exceptions as the independent auditor may believe appropriate.

The domestic insurer shall file a copy of this letter with the Commissioner.

(c) If an independent auditor that audited the most recent financial report filed by the insurer with the Commissioner under this chapter subsequently ceases to be the independent auditor for the insurer, the insurer shall:

(1) not more than five (5) business days after the cessation of the independent auditor’s services, notify the Commissioner in writing of the identity and address of the new independent auditor;

(2) not more than ten (10) business days after the notification given in subdivision (1), furnish the Commissioner with a separate letter that states whether in the twenty-four (24) months preceding the engagement of the new independent auditor there were any disagreements between the insurer and its former independent auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of the former independent auditor, would have caused the former independent auditor to make reference to the subject matter of the disagreement in the former independent auditor’s statement of its opinion on the insurer’s financial report, and, if there was such a disagreement, provides a description of the disagreement. Disagreements required to be reported under this subdivision include those at the decision making level that were resolved:

(A) to the former accountant’s satisfaction; and

(B) not to the former accountant’s satisfaction; and

(3) comply with subsection (d).

For the purposes of this subsection, “decision making level” refers to the personnel of the insurer who are responsible for the presentation of the insurer’s financial statements and the personnel of the independent auditor who are responsible for rendering the opinion of the auditor on the insurer’s financial report.

(d) A domestic insurer subject to the provisions of subsection (c) shall:

(1) provide its former independent auditor with a copy of the letter furnished to the Commissioner under subsection (c)(2); and

(2) request in writing its former independent auditor to furnish a letter addressed to the insurer stating whether the former independent auditor agrees with the statements contained in the letter furnished to the Commissioner under subsection (c)(2) and, if not, stating the reasons for the former independent auditor’s disagreement.



The domestic insurer shall furnish the Commissioner with a copy of any responsive letter it receives from its former independent auditor within five (5) business days after the insurer receives the letter.

27-1-3.5-9 Qualifications of Accountants

(a) For the purposes of this chapter, the Commissioner may not recognize as an independent auditor any individual or firm that is not:

(1) a certified public accountant (if an individual) or made up of certified public accountants (if a firm); or

(2) in good standing with:

(A) the American Institute of Certified Public Accountants; and

(B) all of the authorities that license certified public accountants and certified public accounting firms in the states in which the individual or firm is licensed to practice.

(b) A partner or other individual responsible for rendering a report may not act in that capacity for more than seven (7) consecutive years. An individual who has been responsible for rendering a report for seven (7) years is disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for two (2) years. A domestic insurer may apply to the Commissioner and request to be exempted from the seven (7) year rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following actors in determining if relief should be granted:

(1) The number of partners, expertise of the partners, or number of insurance clients in the currently registered firm.

(2) The premium volume of the domestic insurer.

(3) The number of jurisdictions in which the domestic insurer transacts business.

(c) The Commissioner may not recognize as an independent auditor or accept an annual audited financial report prepared in whole or part by a person who:

(1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act under federal law (18 U.S.C. 1961 through 1968) or state law (IC 35-45-6) or any dishonest conduct or practices under federal or state law;

(2) has been found to have violated the insurance law of this state with respect to any previous reports submitted under this chapter; or

(3) has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this chapter.

(d) The Commissioner may conduct a hearing under IC 4-21.5 to determine whether an independent auditor engaged by a domestic insurer is sufficiently independent of that domestic insurer to be capable of exercising independent judgment and expressing an objective opinion on the financial statements in the annual financial report filed by the insurer under this chapter. If the Commissioner determines that the auditor is not sufficiently independent of the insurer, the Commissioner shall require the insurer to replace the auditor with another that is sufficiently independent of the insurer.



27-1-3.5-10 Consolidated or Combined Audits

A domestic insurer may apply in writing to the Commissioner for approval to satisfy the requirements of this chapter by filing audited consolidated or combined financial statements instead of separate annual audited financial statements if the insurer is part of a group of insurance companies that utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of the insurer’s direct and assumed business to the pool. If a domestic insurer whose application is approved elects to file a consolidated return, the insurer shall file, with its financial statements, a columnar consolidating or combining schedule, which must meet the following requirements:

(1) Amounts shown on the consolidated or combined audited financial report shall be shown on the schedule.


(3) Noninsurance operations shall be shown on the schedule on an individual basis.


(5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the schedule and comparable amounts shown on the annual statements of the insurers.

27-1-3.5-11 Misstated Financial Condition

(a) A domestic insurer required to file annual audited financial reports under this chapter shall require its independent auditor to report in writing to the Board of Directors or the Board of Director’s audit committee, not more than five (5) business days after making a determination, the independent auditor’s determination that:

(1) the domestic insurer has materially misstated to the Commissioner the financial condition of the insurer as of the date of the balance sheet being examined by the independent auditor; or

(2) the domestic insurer does not meet the minimum capital and surplus requirements of Indiana as of the date of the balance sheet being examined by the independent auditor.

The domestic insurer who has received a report under this section shall forward a copy of the report to the Commissioner within five (5) business days after receipt of the report and shall provide the independent accountant making the report with evidence of the report being furnished to the Commissioner. An independent auditor who does not receive the evidence that the report was filed with the Commissioner within the required five (5) business days shall furnish the Commissioner a copy of the report within the next five (5) business days. An independent auditor may not be liable to any person for a statement made in connection with this subsection, if the statement is made in good faith compliance with this subsection.

(b) If the independent auditor of a domestic insurer, after the filing of the insurer’s audited financial report under this chapter, becomes aware of facts that, if the independent auditor had been aware of the facts when writing its report, might have affected the independent auditor’s report that was included in the insurer’s audited financial report, the independent auditor shall take such action as is prescribed in the Professional Standards of the American Institute of Certified Public Accountants.



27-1-3.5-12 Evaluation of Accounting System

(a) A domestic insurer required by this chapter to file an audited financial report with the Commissioner shall also furnish the Commissioner with:

(1) a written report (or a letter on reportable conditions) describing the significant deficiencies in the insurer’s internal control structure, if internal control deficiencies were noted by the domestic insurer’s independent auditor in connection with its audit; and

(2) a written discussion of any remedial action taken or proposed in connection with the written report.

(b) The written report and written discussion required under subsection (a) must be filed not later than sixty (60) days after the filing of the annual audited financial statements.

27-1-3.5-12.5 Accountant’s Letter of Qualifications

The independent auditor shall furnish the domestic insurer, in connection with and for inclusion in the filing of the annual audited financial report, a letter stating the following:

(1) That the independent auditor as independent with respect to the insurer and conforms to the standards of the independent auditor’s profession as contained in the Code of Professional Ethics and Pronouncements of the American Institute of Certified Public Accountants and the rules of Professional Conduct of the Indiana State Board of Accountancy.

(2) The:

(A) general background and experience; and

(B) experience in audits of insurers; of the staff assigned to the audit. The letter must also state whether each member of the staff is a certified public accountant. This subdivision does not prohibit the independent auditor from using the staff considered appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the independent auditor understands that the Commissioner will be relying on the independent auditor’s annual audited financial report and the independent auditor’s opinion in the report for the monitoring and regulation of the financial positions of the insurers.

(4) That the independent auditor consents to the requirements of Section 13 of this chapter and agrees to make available for review by the Commissioner, the Commissioner’s designee, or the Commissioner’s appointed agent, any of the independent auditor’s work papers and significant communications.

(5) That the independent auditor is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(6) That the independent auditor is in compliance with the requirements of Section 9 of this chapter.

27-1-3.5-13 Availability and Maintenance of CPA Work Papers

(a) A domestic insurer required to file an audited financial report under this chapter shall require its independent auditor to make available for review by department examiners:



(1) all work papers prepared in the conduct of the independent auditor’s examination; and

(2) any record of significant communications related to the audit between the independent auditor and the insurer that took place at:

(A) the offices of the insurer;

(B) the department;

(C) the offices of the independent auditor; or

(D) any other reasonable place designated by the Commissioner.

The insurer shall require the independent auditor to retain the audit work papers and communications until the department has filed a report on the examination covering the period of the audit but not later than seven (7) years after the date of the audit report.

(b) Department examiners, in conducting a review of an independent auditor’s work papers, may make and retain copies of the work papers and communications. A review of an independent auditor’s work papers and communications shall be considered an investigation and all work papers and communications obtained or copied during the course of that investigation are confidential under IC 27-1-3.1-15.

27-1-3.5-14 Exemptions

(a) In response to a written application from a domestic insurer, the Commissioner may grant an exemption from compliance with this chapter if the Commissioner finds, upon review of the application, that compliance with this chapter would constitute a financial or an organizational hardship upon the domestic insurer. An exemption may be granted at any time for a specified period.

(b) Within ten (10) days after the denial of a domestic insurer’s written request for an exemption from this chapter, the insurer may, in writing, request a hearing on its application for an exemption. The hearing shall be held under IC 4-21.5.

27-1-3.5-16 Penalty for Late Filing

A domestic insurer that fails to file an audited annual financial report before July 1 or any other deadline established by the Commissioner for the insurer under this chapter without having obtained an extension is subject to a civil penalty of fifty dollars ($50) per day until the report is received by the Commissioner.

27-1-3.5-17 Other Examinations Allowed

This chapter does not prohibit or in any way restrict the Commissioner from ordering, conducting, or performing examinations of insurers under IC 27-1-3.1.

27-1-3.5-18 Canadian and British Companies

(a) In the case of a British or Canadian insurer, the annual audited financial report refers to the annual statement of total business on the form filed by the company with its domiciliary supervision authority audited by an independent auditor.

(b) For a British or Canadian insurer, the letter required under Section 8 of this chapter shall state that the accountant is aware of the requirement relating to the annual audited statement filed with the



Commissioner under Section 6 of this chapter and shall affirm that the opinion expressed is in conformity with those requirements.



INDIANA STATUTES

HMO Insurance Laws TITLE 27, Article 13

Chapter 8 — Annual Reports

27-13-8-1

On or before March 1 of each year, a health maintenance organization must file with the commissioner a report that covers the preceding calendar year. The report must be:

(1) Made on forms prescribed by the commissioner; and

(2) Verified by at least two (2) principal officers of the health maintenance organization.

27-13-8-1.5

(a) Each health maintenance organization authorized to conduct business in Indiana and required to file an annual statement with the department under this chapter shall prepare the health maintenance organization’s statement:

(1) On the National Association of Insurance Commissioners (NAIC) Annual Statement Blank:

(2) In accordance with NAIC Annual Statement Instructions; and

(3) Following practices and procedures prescribed by the most recent NAIC Accounting Practices and Procedures Manual.

(b) To the extent that the NAIC Annual Statement Instructions require disclosure under subsection (a) of compensation paid to or on behalf of a health maintenance organization’s officers, directors, or employees, the information may be filed with the department as an exhibit separate from the annual statement blank. The compensation information described under this subsection shall be maintained by the department as confidential and may not be disclosed to the public under IC 5-14-3.

27-13-8-2

(a) In addition to the report required by section 1 of this chapter, a health maintenance organization shall each year file with the commissioner the following:

(1) Audited financial statements of the health maintenance organization for the preceding calendar year prepared in conformity with statutory accounting practices prescribed or otherwise permitted by the department.

(2) A list of participating providers who provide health care services to enrollees or subscribers of the health maintenance organization.

(3) A description of the grievance procedure of the health maintenance organization:

(A) Established under IC 27-13-10, including:

(i) The total number of grievances handled through the procedure during the preceding calendar year;



(ii) A compilation of the causes underlying those grievances; and

(iii) A summary of the final disposition of those grievances; and

(B) Established under IC 27-13-10.1, including:

(i) The total number of external grievances handled throughout the procedure during the preceding calendar year;

(ii) A compilation of the causes underlying those grievances; and

(iii) A summary of the final disposition of those grievances;

for each independent review organization used by the health maintenance organization during the reporting year.

(4) The percentage of providers credentialed by the health maintenance organization according to the most current standards or guidelines, if any, developed by the National Committee on Quality Assurance or successor organization.

(5) The health maintenance organization’s Health Plan Employer Data and Information Set (HEDIS) data.

(b) The information required by subsection (a)(2) through (a)(4) must be filed with the commissioner on or before March 1 of each year. The audited financial statements required by subsection (a)(1) must be filed with the commissioner on or before June 1 of each year. The health maintenance organization’s HEDIS data required by subsection (a)(5) must be filed with the commissioner on or before July 1 of each year. The commissioner shall:

(1) Make the information required to be filed under this section available to the public; and

(2) Prepare an annual compilation of the data required under subsection (a)(3) through (a)(5) that allows for comparative analysis.

(c) Upon a determination by a health maintenance organization’s auditor that the health maintenance organization:

(3) Does not meet the requirement of IC 27-13-12-3; or

(4) Is in the condition described in IC 27-13-24-1(a)(5);

The health maintenance organization shall notify the commissioner within five (5) business days after the auditor’s determination.

(d) The commissioner may require any additional reports as are necessary and appropriate for the commissioner to carry out the commissioner’s duties under this article.

27-13-8-3

(a) This section applies to a domestic health maintenance organization that is authorized to transact business in Indiana.

(b) As used in this section, “NAIC” refers to the National Association of Insurance Commissioners.



(c) On or before March 1 of each year, a health maintenance organization shall file with the National Association of Insurance Commissioners and with the department a copy of the health maintenance organization’s annual statement convention blank and additional filings prescribed by the commissioner for the preceding year. A health maintenance organization shall also file quarterly statements with the NAIC and with the department, on or before May 15, August 15, and November 15 of each year, in a form prescribed by the commissioner. The information filed with the NAIC under this subsection:

(1) Must be:

(A) In the same format; and

(B) Of the same scope;

As is required by the commissioner under section 1 of this chapter;

(2) To the extent required by the NAIC, must include the signed jurat page and the actuarial certification; and

(3) Must be filed electronically in accordance with NAIC electronic filing specifications.

The commissioner may, for good cause shown, grant an exemption from the requirement of this section to domestic health maintenance organization that operate only in Indiana. If a health maintenance organization files any amendment or addendum to the health maintenance organization’s annual statement convention blank or quarterly statement with the commissioner, the health maintenance organization shall also file a copy of the amendment or addendum with the NAIC. Annual and quarterly financial statements are considered filed with the NAIC when delivered to the address designated by the NAIC for the filings, regardless of whether the filing is accompanied by any applicable fee.

(d) The commissioner may, for good cause shown, grant a health maintenance organization an extension of time for the filing required by subsection (c).

(e) In the absence of actual malice:

(1) Members of the NAIC;

(2) Duly authorized committees, subcommittees, and task forces of members of the NAIC;

(3) Delegates of members of the NAIC;

(4) Employees of the NAIC; and

(5) Other persons responsible for collecting, reviewing, analyzing, and disseminating information developed from the filing of annual statement convention blanks under this section; shall be considered to be acting as agents of the commissioner under the authority of this section and are not subject to civil liability for libel, slander, or any other cause of action by virtue of the collection, review, analysis, or dissemination of the data and information collected from the filings required by this section.

(f) The commissioner may suspend, revoke, or refuse to renew the certificate of authority of a health maintenance organization that fails to file the health maintenance organization’s annual statement



convention blank or quarterly statements with the NAIC or with the department within the time allowed by subsection (c) or (d).

27-13-8-4

(a) The commissioner may impose a civil penalty of five hundred dollars ($500), after notice and hearing under IC 4-21.5-3, on a health maintenance organization that fails to file an audited annual financial statement under this chapter.

(b) A domestic health maintenance organization that fails to file an audited annual financial statement under section 2(a)(1) of this chapter before June 1 of each year without obtaining an extension is subject to a civil penalty of fifty dollars ($50) per day until the report is received by the commissioner.



IOWA REGULATIONS

TITLE 191.—Insurance Division Chapter 5 — Regulation of Insurers

191-5.25 Annual Audited Financial Reports

5.25(1) Purpose

The purpose of this rule is to improve the Iowa insurance division’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

Every insurer (as defined in subrule 5.25(2), paragraph “c”) shall be subject to this rule. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this rule if:

a. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in subrules 5.25(3), 5.25(10), and 5.25(11), respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance).

b. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in subrule 5.25(9).

This rule shall not prohibit, preclude or in any way limit the Commissioner of insurance from ordering or conducting or performing examinations of insurers under the rules of the division of insurance and the practices and procedures of the division of insurance.

5.25(2) Definitions

As used in this rule:

“Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

“Audited financial report” means and includes those items specified in subrule 5.25(4).

“Insurer” means a licensed insurer under Title XX of the Iowa Code, except entities organized under Iowa Code chapters 512A, 512B, 518, and 518A.



5.25(3) Filing and Extensions for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 1 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with 90 day’s advance notice to the insurer.

Extension of the June 1 filing date may be granted by the Commissioner for 30-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

5.25(4) Contents of annual audited financial report. The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the division of insurance of the state of domicile.


a. Report of independent certified public accountant.

b. Balance sheet reporting admitted assets liabilities, capital and surplus.

c. Statement of operations.

d. Statement of cash flows.

e. Statement of changes in capital and surplus.

f. Notes to financial statements. These notes shall be required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

(1) A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to Iowa Code Sections 508.11 and 515.63 with a written description of the nature of these difficulties.


g. The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.)

5.25(5) Designation of Independent Certified Public Accountant

Each insurer required by this rule to file an annual audited financial report must, within 60 days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this rules as the “accountant”) retained to conduct the annual audit set forth in this rule. Insurers not retaining an independent certified public accountant on the



effective date of this rule shall register the name and address of their retained certified public accountant not less than six months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner, stating that the accountant is aware of the provisions of the Title XX of the Iowa Code and administrative rules thereunder that relate to accounting and financial matters and affirming that the accountant will express an opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the insurance division, specifying such exceptions as the accountant may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five business days notify the division of this event. The insurer shall also furnish the Commissioner with a separate letter within ten business days of the above notification stating whether in the 24 months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused the accountant to make reference to the subject matter of the disagreement in connection with the opinion. The disagreements required to be reported in response to this section include both those resolved to the former account’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for the disagreement; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

5.25(6) Qualifications of Independent Certified Public Accountant

a. The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

b. Except as otherwise provided herein, independent certified public accountants shall be recognized as qualified as long as they conform to the standards of their profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and rules and regulations and code of ethics and rules of professional conduct of the Iowa accountancy examining board, or similar code.

c. No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:




The requirements of this paragraph shall become effective two years after the effective date of this rule.



d. The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report prepared in whole or in part by, any natural person who:


(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this rule.

e. The Commissioner of insurance, under 191—Chapter 3, may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual audited financial report made pursuant to this rule and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this rule.

5.25(7) Consolidated or Combined Audits

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report as follows:

a. Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet.

b. Amounts for each insurer subject to this section shall be stated separately.

c. Noninsurance operations may be shown on the worksheet on a combined or individual basis.

d. Explanations of consolidating and eliminating entries shall be included.

e. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

5.25(8) Scope of Examination

Financial statements furnished pursuant to subrule 5.25(4) shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

5.25(9) Notification of Adverse Financial Condition

The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five business days to the Board of Directors or its audit committee any



determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the applicable minimum capital and surplus requirements of Iowa Code Sections 508.5, 508.10, 515.8, 515.10 and subsection 515.12(5) as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five-business-day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five business days.


If the accountant, subsequent to the date of the audited financial report filed pursuant to this rule, becomes aware of facts which might have affected his report, the insurance division notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU561 of the Professional Standards of the American Institute of Certified Public Accountants.

5.25(10) Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the insurance division within 60 days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

5.25(11) Accountant’s Letter of Qualifications

The accountant shall furnish the insurer, in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

a. That the accountant is independent with respect to the insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the rules of professional conduct of the Iowa accountancy examining board, or similar code.

b. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing such staff as is deemed appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

c. That the accountant understands the annual audited financial report and the opinion thereon will be filed in compliance with this rule and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.



d. That the accountant consents to the requirements of subrule 5.25(12) and that the accountant consents and agrees to make available for review by the Commissioner, or a designee or appointed agent, the workpapers, as defined in subrule 5.25(12).

e. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

f. A representation that the accountant is in compliance with the requirements of subrule 5.25(6).

5.25(12) Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by independent certified public accountants of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to their examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by independent certified public accountants in the course of their examination of the financial statements of an insurer and which support their opinions thereof.

Every insurer required to file an audited financial report pursuant to this rule shall require the accountant to make available for review by insurance division examiners all workpapers prepared in the conduct of the examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance division, or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance division has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report.

In the conduct of the aforementioned periodic review by insurance division examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the division. Such reviews by the division examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the division.

5.25(13) Exemption and Effective Dates

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this rule if the Commissioner finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from this rule, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with 191—Chapter 3.

Domestic insurers retaining a certified public accountant on the effective date of this rule who qualify as independent shall comply with this rule for the year ending December 31, 1992, and each year thereafter unless the Commissioner permits otherwise.

Domestic insurers not retaining a certified public accountant on the effective date of this rule who qualify as independent may meet the following schedule for compliance unless the Commissioner permits otherwise:

a. As of December 31, 1992, file with the Commissioner:






b. For the year ending December 31, 1992, and each year thereafter, such insurers shall file with the Commissioner all reports required by this rule.

Foreign insurance shall comply with this rule for the year ending December 31, 1992, and each year thereafter unless the Commissioner permits otherwise.

5.25(14) Canadian and British Companies

In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

For such insurers, the letter required in subrule 5.25(5) shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to subrule 5.25(3).



KANSAS REGULATIONS

Agency 40, Article 1 — General

40-1-37 Insurance Companies; Audited Financial Reports; Filing Requirements

The National Association of Insurance Commissioners’ model regulation requiring annual audited financial reports, October 1998 edition, is hereby adopted by reference {Footnote 1} subject to the following exceptions:

A. Section 1is not adopted.

B. Section 2 is hereby amended by replacing the first sentence in paragraph 2 with the following sentence: “Every insurer (as defined in Section 3) shall be subject to this regulation unless an exemption is granted pursuant to Section 14 of this regulation.”

C. Sections 2, 7, 10, and 12 are amended by replacing the phrase “[insert state]” with “Kansas.”

D. The definition of “insurer” contained in Section 3, paragraph C is not adopted by reference and is replaced with the following language: “Insurer means an insurance company, fraternal benefit society, mutual nonprofit hospital and medical service corporation, health maintenance organization or any prepaid service plan operating under article 19a of chapter 40 of the Kansas Statutes Annotated.

E. Section 5, paragraph F is amended by replacing the last sentence of that paragraph with the following sentence: “The notes shall include a reconciliation of the differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to K.S.A. 40-225 and amendments thereto, with a written description of the nature of these differences.”

F. The rotation requirements imposed by Section 7, paragraph C shall commence to accrue with the first audited financial report rendered on or after January 1, 1995.

G. Section 7, paragraph E is not adopted by reference and is replaced with the following language: “The commissioner of insurance as provided in K.S.A. 40-2, 125 and amendments thereto may, as provided in the Kansas administrative procedure act, hold a hearing to determine whether a certified public accountant is qualified. Considering the evidence presented, the commissioner may rule that the accountant is not qualified for purposes of expressing the accountant’s opinion on the financial statements in the annual audited financial report made pursuant to this regulation and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this regulation.”

H. Section 14, paragraph A is amended by replacing the last sentence with the following language: “The hearing shall be held in accordance with the Kansas administrative procedure act.”

I. Section 14, paragraphs B, C, and D are not adopted by reference. (Authorized by K.S.A. 40-103 and K.S.A. 40-225; implementing K.S.A. 40-225; effective July 10, 1989; amended Jan. 4, 1993; amended-September 14, 2001.)

[[Section 1. Authority

This regulation is promulgated by the Commissioner of Insurance pursuant to Sections (insert applicable sections) of the (insert state) Insurance Law.]]




The purpose of this regulation is to improve the [insert state] Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

Every insurer shall be subject to this rule unless an exemption is granted pursuant to Section 14 of this regulation. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which have been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this rule if:

A. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Sections 4, 11 and 12, respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance).

B. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in Section 10.

This rule shall not prohibit, preclude or in any way limit the Commissioner of Insurance from ordering and/or conducting and/or performing examinations of insurers under the rules and regulations of the [insert state] Department of Insurance and the practices and procedures of the [insert state] Department of Insurance.


A. “Audited financial report” means and indicates those items specified in Section 5 of this rule.

B. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

C. “Insurer” means an insurance company, fraternal benefit society, mutual nonprofit hospital and medical service corporation, health maintenance organization or any prepaid service plan operating under articles 19a, 19b or 19d of chapter 40 of the Kansas Statutes Annotated.



Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by



the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.


The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.








(1) A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Section [insert applicable section] of the [insert state] Insurance Statute with a written description of the nature of these differences.


G. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted).


Each insurer required by this rule to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this rule as the “accountant”) retained to conduct the annual audit set forth in this rule. Insurers not retaining an independent certified public accountant on the effective date of this rule shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the



financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this Section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.



B. Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the [insert state] Board of Public Accountancy, or similar code.



(2) Premium volume of the insurer or;


The requirements of this paragraph shall become effective two (2) years after the enactment of this rule.





(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule or;

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this rule.

E. The Commissioner of Insurance, as provided in Section [insert applicable section] of the Statute, may, as provided in Rule [insert applicable citation] of the Rules and Regulations of the [insert state] Insurance Department, hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this rule and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this rule.











The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer



does not meet the minimum capital and surplus requirement of the [insert state] Insurance Statute as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.


If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this rule, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.





A. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the [insert state[ Board of Public Accountancy, or similar code.

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

C. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this rule and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

D. That the accountant consents to the requirements of Section 13 of this rule and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Section 13.




F. A representation that the accountant is in compliance with the requirements of Section 7 of this rule.

Section 13. Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

Every insurer required to file an Audited Financial Report pursuant to this rule, shall require the accountant to make available for review by Department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.



Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this rule if the Commissioner finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this rule, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Rules and Regulations of the [insert state] Department of Insurance pertaining to administrative hearing procedures.

[[Domestic insurers retaining a certified public accountant on the effective date of this rule who qualify as independent shall comply with this Rule for the year ending December 31, 19[ ] and each year thereafter unless the Commissioner permits otherwise.

Domestic insurers not retaining a certified public accountant on the effective date of this rule who qualify as independent may meet the following schedule for compliance unless the Commissioner permits otherwise.]]

A. As of December 31, 19[ ], file with the Commissioner:






B. For the year ending December 31, 19[ ] and each year thereafter, such insurers shall file with the Commissioner all reports required by this rule.

[[Foreign insurers shall comply with this Rule for the year ending December 31, 19[ ] and each year thereafter, unless the Commissioner permits otherwise.]]




[[Section 16. Severability Provision

If any section or portion of a section of this rule or the applicability thereof to any person or circumstance is held invalid by a court the remainder of the rule or the applicability of such provision to other persons or circumstances shall not be affected thereby.]]



KENTUCKY REGULATIONS

TITLE 806 Chapter 3 — Authorization of Insurers and General Requirements

806 KAR 3:170 Annual Audited Financial Reports

RELATES TO: KRS 304.3-240

PURSUANT TO: KRS 304.2-110

NECESSITY AND FUNCTION: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.3-240 authorizes the Commissioner of Insurance to require additional information to the annual statement filed by insurers. This regulation requires annual filing of audited financial reports by insurers.


As used in this regulation:

(1) “Audited financial report” means and includes those items specified in Section 4 of this regulation;

(2) “Accountant” and “independent certified public accountant” mean an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice, and for Canadian and British insurers, mean a Canadian-chartered or British-chartered accountant;

(3) “Commissioner” means the Commissioner of the Kentucky Department of Insurance;

(4) “Department” means the Kentucky Department of Insurance;

(5) “Insurer” means an insurer authorized to do business In Kentucky by the Commissioner; and

(6) “Work papers” mean the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the independent certified public accountant’s examination of the financial statements of an insurer. Work papers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of insurer documents, and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the independent certified public accountant’s examination of the financial statements of an insurer and which support the independent certified public accountant’s opinion of the financial statements of an insurer.


(1) The purpose of this regulation is to improve the department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and results of operations of insurers.

(2) Every insurer shall be subject to this regulation. Insurers having direct premiums written in this state of less than one (1) million dollars in any calendar year and less than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of the calendar year shall be



exempt from this regulation for years in which these conditions exist (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities), except that insurers having assumed premiums pursuant to contracts or treaties of reinsurance of one (1) million dollars or more shall not be exempt.

(3) Foreign or alien insurers filing audited financial reports in another state, pursuant to the other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements of this regulation, are exempt from this regulation if:

(a) A copy of the audited financial report, report-on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with the other state are filed with the Commissioner in accordance with the filing dates specified in Sections 4, 11, and 12 of this regulation respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance); and

(b) A copy of any notification of adverse financial condition report filed with the other state is filed with the Commissioner within the time specified in Section 9 of this regulation.

(4) This regulation shall not prohibit, preclude, or in any way limit the Commissioner from ordering, conducting, or performing examinations of insurers under the Kentucky Insurance Code.



(2) Extensions of the June 1 filing date may be granted by the Commissioner for thirty (30) day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting the extension and determination by the Commissioner of good cause for an extension. The request for extension shall be submitted in writing not less than ten (10) days prior to the due date and contain sufficient detail to permit the Commissioner to make an informed decision as to the requested extension.


(1) The annual audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the insurance supervisory authority of the insurer’s state of domicile.

(2) The annual audited financial report shall include the following:


(b) Balance sheet for reporting admitted assets, liabilities, capital, and surplus;

(c) Statement of operations;

(d) Statement of cash flows;

(e) Statement of changes in capital and surplus;



(f) Notes to financial statements. These notes shall be those required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

1. A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to KRS 304.3-240 with a written description of the nature of these differences; and

2. A summary of ownership and relationships of the insurer and all affiliated companies; and

(g) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted. The annual statement forms and instructions are those prescribed by the National Association of Insurance Commissioners, Life and Accident and Health (Form 1, 1990) and Fire and Casualty (Form 2, 1990), incorporated by reference and available from the Kentucky Department of Insurance, 229 West Main Street, Frankfort, Kentucky 40601, 8 a.m. to 4:30 p.m. (ET), weekdays.


(1) Each insurer required by this regulation to file an annual audited financial report shall, within sixty (60) days after becoming subject to this requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this regulation. Insurers not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner, stating that the accountant is aware of the provisions of the insurance laws of the insurer’s state of domicile that relate to accounting and financial matters and affirming that the accountant will express the accountant’s opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the insurance regulatory authority in that state, specifying any exceptions as the accountant may believe appropriate.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding the accountant’s resignation there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this subsection include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision making level, that is, between personnel of the insurer responsible for presentation of its financial statements and personnel



for the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter, and, if not, stating the reasons for which the accountant does not agree, and the insurer shall furnish the responsive letter from the former accountant to the Commissioner together with its own.


(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British insurer, that is not a chartered accountant.

(2) Except as otherwise provided in this regulation, an independent certified public accountant shall be recognized as qualified as long as the independent certified public accountant conforms to the standards of the accounting profession, as contained in the Code of Professional Conduct of the American Institute of Certified Public Accountants (January 12, 1988) and statutes, regulations, and codes of ethics and rules of professional conduct administered by the State Board of Accountancy of Kentucky (1991), or similar code both incorporated by reference and available from the Kentucky Department of Insurance, 229 West Main Street, Frankfort, Kentucky 40601, from 8 a.m. to 4:30 p.m. (ET), on weekdays.

(3) No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service the person shall be disqualified from acting in that or a similar capacity for the same insurer or its insurance subsidiaries or affiliates for a period of two (2) years. The requirements of this subsection shall become effective two (2) years after the effective date of this regulation.

(a) An insurer may make application to the Commissioner for relief from this rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:

1. Number of partners, expertise of the partners, or the number of insurance clients in the currently registered firm;

2. Premium volume of the insurer;


(b) The Commissioner shall not recognize as a qualified independent certified public accountant, nor except any annual audited financial report, prepared in whole or in part by any natural person who:

1. Has been convicted of fraud, bribery, a conviction of the Racketeer Influenced and Corrupt Organizations Act, 18 USC l961, 1968, or any dishonest conduct or practices under federal or state law;

2. Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or

3. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this regulation.



(4) If an insurer disagrees with a determination made by the Commissioner pursuant to subsection (3) of this section, it may request a hearing as set forth in KRS Chapter 304.2.


An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial reports if the insurer is part of a group of insurers which utilizes a pooling or 100% reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In these cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(1) Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet;

(2) Amounts for each insurer subject to this section shall be stated separately;

(3) Noninsurance operations may be shown on the worksheet or a combined or individual basis;

(4) Explanations of consolidating and eliminating entries shall be included; and

(5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown in the annual statements of the insurers.


Financial statements furnished pursuant to Section 4 of this regulation shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration shall also be given to other procedures illustrated in the Financial Condition Examiner’s Handbook of the National Association of Insurance Commissioners (1990), incorporated by reference and available from the Kentucky Department of Insurance, 229 West Main Street, Frankfort, Kentucky 40601, from 8 a.m. to 4:30 p.m. (ET), weekdays, which the independent certified public accountant deems necessary.


(1) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of the Kentucky Insurance Code as of that date. An insurer which has received a report pursuant to this subsection shall forward a copy of the report to the Commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of this report being furnished to the Commissioner. If the independent certified public accountant fails to receive this evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

(2) It is not the intent of the Commissioner that an independent certified public accountant be liable in any manner to any person for any statement made in connection with subsection (1) of this section if the statement is made in good faith in compliance with subsection (1) of this section.



(3) If the accountant, subsequent to the date of the audited financial report filed pursuant to this regulation, becomes aware of facts which might have affected his report, the Commissioner notes the obligation of the accountant to take the action prescribed in volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants (1990), incorporated by reference and available from the Kentucky Department of Insurance, 229 West Main Street, Frankfort, Kentucky 40601, 8 a.m. to 4:30 p.m. (ET), weekdays.


In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS 60 communication of internal control structure matters noted in an audit (AU § 325 of the Professional Standards of the American Institute of Certified Public Accountants, (1990), available from the Kentucky Department of Insurance, 229 West Main Street, Frankfort, Kentucky 40601, 8 a.m. to 4:30 p.m. (ET), weekdays) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report shall be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the department within sixty (60) days after the filing of the annual audited financial statement. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.



(1) That the accountant is independent with respect to the insurer and conforms to the standards of the accountant’s profession as contained in the Code of Professional Conduct and Pronouncements of the American Institute of Certified Public Accountants (January 12, 1988) and statutes, regulations, and rules of professional conduct of the State Board of Accountancy of Kentucky (1991), both available from the Kentucky Department of Insurance, 229 West Main Street, Frankfort, Kentucky 40601, 8 a.m. to 4:30 p.m. (ET), weekdays, or similar code;

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing in this regulation prohibits the accountant from utilizing staff as the accountant deems appropriate where use is consistent with the standards prescribed by generally accepting auditing standards;

(3) That the accountant understands the annual audited financial report, that the accountant’s opinion on it will be filed in compliance with this regulation, and that the Commissioner will be relying on this information in monitoring and regulation of the financial position of insurers;

(4) That the accountant consents to the requirements of Section 12 of this regulation and that the accountant consents and agrees to make available for review by the Commissioner, his designee, or his appointed agent, the work papers;

(5) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing of the American Institute of Certified Public Accountants;

(6) A representation that the accountant is in compliance with the requirements of Section 6 of this regulation.



Section 12. Availability and Maintenance of Certified Public Accountant Work Papers

(1) Every insurer required to file an audited financial report pursuant to this regulation shall require the accountant to make available for review by department examiners all work papers prepared in the conduct of the accountant’s examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the offices of the department, or any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit work papers and communications until the department has filed a report on examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

(2) In the conduct of the periodic review by department examiners described in subsection (1) of this section, it shall be agreed that photocopies of pertinent audit work papers may be made and retained by the department. Reviews by the department examiners shall be considered investigations and all working papers and communications obtained during the course of review shall be afforded the same confidentiality as other examination work papers generated by the department.


(1) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this regulation if the Commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted any time and from time to time for a specified period or periods. Upon denial of an insurer’s written request for an exemption from this regulation, the insurer may request a hearing on its application for an exemption pursuant to KRS Chapter 304.2.

(2) Domestic insurers retaining a certified public accountant on the effective date of this regulation who qualify as independent shall comply with this regulation for the year ending December 31, 1991, and each year thereafter unless the Commissioner permits otherwise.

(3) Domestic insurers not retaining a certified public accountant on the effective date of this regulation who qualify as independent shall meet the following schedule for compliance unless the Commissioner permits otherwise:

(a) As of December 31, 1991 file with the Commissioner:

1. Report of independent certified public accountant;

2. Audited balance sheet; and

3. Notes to audited balance sheet.

(b) For the year ending December 31, 1991, and each year thereafter, these insurers shall file with the Commissioner all reports required by this regulation. Foreign insurers shall comply with this regulation for the year ending December 31, 1991, and each year thereafter, unless the Commissioner permits otherwise.


(1) In the case of Canadian and British insurers, the annual audited financial reports shall be defined as the annual statement of total business in the manner filed by these insurers with their domiciliary supervisory authority duly audited by an independent chartered accountant.



(2) For Canadian and British insurers, the letter required by Section 5 of this regulation shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Section 3 of this regulation and shall affirm that the opinion expressed is in conformity with the requirements of Section 3 of this regulation.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS LOUISIANA

LOUISIANA STATUTES


Part XXVIII- A — Audited Financial Reports Law

R.S. 22:1321 “Audited Financial Reports Law”

This Part shall be known and may be cited as the “Audited Financial Reports Law.”

1322. Purpose and Scope

The purpose of this Part is to improve the Commissioner’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial condition and the results of operations of insurers.

1323. Audited Financial Report

By June first of each year, every admitted insurer in the state shall file an annual financial report for the immediately preceding year ending December thirty-first, audited by a certified public accountant as required by the National Association of Insurance Commissioners, as evidenced by its Annual Statement Instruction Handbook. The Commissioner may determine and require that additional information be submitted in the financial report.

1324. Exemptions and Filing Dates

A. (1) The Commissioner shall grant an exemption from the provisions of this Part if:

(a) After written application for an exemption submitted by an insurer, the Commissioner determines that compliance with this Part would constitute a financial or organizational hardship on the insurer; or

(b) The insurer is a domestic life insurer which does business exclusively in the state of Louisiana, with gross annual premiums totaling twenty million dollars or less and has entered into reinsurance agreements having a net aggregate amount of five million dollars or less and has admitted assets of less than twenty-five million dollars. No domestic life insurer under this Subsection that fails to satisfy the financial solvency requirements promulgated by the Department of Insurance shall be exempt from the provisions of this Part, including the submission of annual audited financial statements.

(2) An exemption may be granted, in writing, at any time and from time to time for a specified period or periods.

(3) Within ten days after a denial of the written request for an exemption from this Part, the insurer may request, in writing, a hearing on its application for an exemption. The hearing shall be held in accordance with Part XXIX of the Louisiana Insurance Code.

B. Upon written application of an insurer, the Commissioner may permit an insurer to file annual financial reports for specified periods on another basis other than a calendar year basis. Within ten days from a denial of such a written request, the insurer may request, in writing, a hearing on its application. The hearing shall be held in accordance with Part XXIX of the Louisiana Insurance Code.


LOUISIANA NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

1325. Rules and Regulations

The Commissioner shall adopt reasonableness and regulations for the implementation and administration of the provisions of this Part in accordance with the Louisiana Administrative Procedure Act, R.S. 49:950 et seq.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MAINE

MAINE STATUTES

Insurance Laws TITLE 24- A—Maine Insurance Code

Chapter 3 — The Insurance Superintendent

24-A § 221-A Audited Financial Reports

1. Purpose

The purpose of this section is to provide the superintendent with a means of improved financial monitoring of insurers doing business in this State. This mechanism of increased financial surveillance of insurers shall not be a substitute for financial examinations required or authorized by this Title generally.

2. Definitions

As used in the section, unless the context indicates otherwise, the following terms have the following meanings.

A. “Accountant” and “independent certified public accountant” mean an independent certified public accountant or firm licensed to practice in the State or in any state recognizing similar reciprocal licensing requirements and who is a member in good standing of the American Institute of Certified Public Accountants. It shall also mean, in the case of Canadian and British domiciled companies, a Canadian or British chartered accountant.

B. “Audited financial report” means a written report which meets the requirements of subsection 4.

C. “Insurer” means any insurance company doing business in the state pursuant to this Title and includes, but is not limited to, all life, accident and health, property and casualty, title, direct writing reinsuring companies and surplus lines companies regulated by the Bureau of Insurance.

3. Audits Required

All insurers, excepting insurers transacting business in this State pursuant to the terms of chapter 51, shall cause to be conducted an annual audit by an independent certified public accountant. Each domestic insurer shall file an audited financial report with the superintendent on or before June 1st for the year ending December 31st preceding. An extension of the filing deadline may be granted by the superintendent upon a showing by the insurer or its accountant that there exists valid justification for such an extension. A foreign or alien insurer shall file an audited financial report upon the superintendent’s request. A firm of independent certified public accountants engaged to perform an audit of an insurer shall substitute the appointed audit partner in charge with another audit partner in charge at least once every 7 years. An accountant substituted for pursuant to this subsection may not serve as a partner in charge of that audit until 2 years from the date of substitution.

4. Content of Annual Audited Financial Reporting

Annual audited financial reporting must consist of the following.

A. Financial statements furnished under this section must be examined by independent certified public accountants in accordance with generally accepted auditing standards as prescribed by the American Institute of Certified Public Accountants. The opinion of the accountant must cover all years for which a financial presentation is made.



The opinion expressed concerning the financial statements filed under this section must conform with the accounting practices prescribed or permitted by the superintendent or the insurance supervisory official of the insurer’s state of domicile. An insurer, with the approval of the superintendent, may file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies that uses a pooling agreement and such an insurer cedes all of its direct and assumed business to the pool or if the insurer has executed a 100% reinsurance agreement with one or more of the insurers in the group and the pooling or reinsurance agreement affects the solvency of the insurer or the integrity of the insurer’s reserves. In those cases, a columnar consolidating or combining worksheet must be filed with the report.

The opinion must be expressed to the insurer by the accountant on the accountant’s letterhead and show the address of the office issuing that opinion, must be manually executed and dated.

B. Financial statements, as a minimum, must consist of:

(1) Balance sheet;

(2) Statement of gain or loss from operations;

(3) Statement of cash flow;

(4) Statement of change in capital paid-up, gross paid-in and contributed surplus and unassigned funds, surplus funds; and

(5) Notes to financial statements.

C. The statement must include an independent certified public accountant’s report respecting evaluation of internal controls.

D. The statement must include an independent certified public accountant’s letter, in conformance with standards established by the National Association of Insurance Commissioners, attesting to that certified public accountant’s qualifications, possession of license and subscription to the code of professional ethics and pronouncements issued by the American Institute of Certified Public Accountants.

5. Rules Authorized

The superintendent shall promulgate such rules as shall be necessary to effectuate provisions of this section.

6. Application and Effective Date

For those insurers doing business in this State which are subject to this section, the filing of the initial annual audited financial reports required under this section are due June 30, 1986, covering the calendar year December 31, 1985. Similar recurring reports are due each June 1st thereafter.

7. Exemptions

Upon written application of any insurer subject to this section, the superintendent may grant an exemption of the filing requirements under this section if the superintendent finds upon review of the application that compliance would constitute a financial hardship upon the insurer.

If an insurer’s annual statement reflects business in an amount less than $100,000 in written premium for the preceding year, the insurer is exempt from the filing requirements of this section with respect to that year.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS MAINE

8. Required Notice Concerning Adverse Financial Condition

Each insurer retaining an independent certified public accountant to represent it with respect to the report which the insurer is required to file pursuant to this section shall, as a condition of its written terms of engagement of the accountant, require that:

A. The accountant immediately notify in writing each member of the Board of Directors of the insurer and the superintendent upon any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported in the annual statement required under Section 423 for the year ending December 31st preceding; and

B. If the accountant, subsequent to the date of the audited financial report required by this section, becomes aware of material subsequent facts which would have affected his report, the accountant shall provide the pertinent information upon his determination to the parties identified in this subsection.



MARYLAND INSURANCE LAWS AND REGULATIONS

Annotated Code of Maryland Insurance Article Title 4 – General Requirements for

Insurers (Applies to Property & Casualty, Life & Health, Title, and Fraternal Companies)

§ 4-116 Annual and Interim Statements; Audited Financial Report

(a) (1) On or before March 1 of each year, unless the Commissioner extends the time for good cause, each authorized insurer shall file with the Commissioner a complete statement of its financial condition, transactions, and affairs for the immediately preceding calendar year.

(2) The annual statement shall:

(i) Be in the form and have the content approved for current use by the National Association of Insurance Commissioners or its successor organization; and

(ii) Contain any additional information that the Commissioner requires.

(3) Unless the Commissioner requires otherwise, the statement of an alien insurer shall relate only to its transactions and affairs in the United States.

(4) Unless the Commissioner extends the time for filing, an authorized insurer that fails to file an annual statement on or before March 10 shall pay a penalty of:

(i) $100 for each day from March 1 to March 10, both inclusive; and

(ii) $150 for each day from March 11 to the day before the Commissioner receives the statement, both inclusive.

(b) At any time, the Commissioner may require an authorized insurer to file an interim statement containing the information that the Commissioner considers necessary.

(c) (1) On or before June 1 of each year, an authorized insurer shall file with the Commissioner an audited financial report for the immediately preceding calendar year.

(2) The authorized insurer shall have the report prepared by an independent certified public accountant.

(3) The Commissioner may:

(i) Set requirements for the form and content of the report; and

(ii) For good cause, extend the time for filing the report.

(4) Unless the Commissioner extends the time for filing, an authorized insurer that fails to file an audited financial report on or before June 10 shall pay a penalty of:

(i) $100 for each day from June 1 to June 10, both inclusive; and

(ii) $150 for each day from June 11 to the day before the Commissioner receives the report, both inclusive.



Code of Maryland Regulations (Applies to all Companies)

31.04.01.04 Accounting Practices and Procedures

A person who is required under Insurance Article, Annotated Code of Maryland, or Health-General Article, Annotated Code of Maryland, to file an annual financial statement, interim financial statement, audited financial report, or annual actuarial opinion shall prepare the documents in accordance with the annual statement instructions and the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners.

Annotated Code of Maryland Insurance Article – Title 4 Requirements for Insurers

(Applies to Property and Casualty, Life and Health, Dental Plan Organizations, Title)

§ 4-118 Qualified Independent Certified Public Accountants

(a) The Commissioner may not recognize any person as a qualified independent certified public accountant unless the person:

(1) Is in good standing:

(i) With the Maryland State Board of Public Accountancy; and

(ii) With the appropriate state board of accountancy of any other State in which the accountant is licensed to practice; or

(2) In the case of a Canadian or British accountant, is a chartered accountant.

(b) Except as otherwise provided in this section, an independent certified public accountant shall be recognized as qualified as long as the accountant conforms to:

(1) For any certified public accountant not licensed in this State, the standards of the accountancy profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants; or

(2) (i) Title 2 of the Business Occupations and Professions Article; and

(ii) The regulations and rules of professional conduct established by the Maryland State Board of Public Accountancy.

(c) (1) (i) A partner in an accounting firm responsible for preparing an audited financial report under § 4-116 of this subtitle for an insurer may not act in that capacity for more than 7 consecutive years for the same insurer.

(ii) If a partner in an accounting firm responsible for preparing an audited financial report under § 4-116 of this subtitle for an insurer exceeds 7 consecutive years in that capacity, the partner shall be disqualified from acting in the same or similar capacity for that insurer or its insurance subsidiaries or affiliates for a period of not less than 2 years.



(2) (i) An insurer may apply to the Commissioner for an exception from the prohibition of paragraph (1) of this subsection on the basis of unusual circumstances.

(ii) In determining whether unusual circumstances exist that would justify the granting of an exception, the Commissioner may consider:

1. The number of partners in the accounting firm currently used by the insurer, the expertise of the partners in that firm, and the number of insurance clients of that firm;

2. The premium volume of the insurer; and

3. The number of jurisdictions in which the insurer transacts business.

(d) The Commissioner may not recognize as a qualified independent certified public accountant, or accept any audited financial report prepared in whole or in part by, any individual who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or State law;

(2) Has violated the insurance laws of this State with respect to any audited financial reports previously submitted by that individual;

(3) Has violated any provision of Title 2 of the Business Occupations and Professions Article or any regulation or rule of professional conduct established by the State Board of Public Accountancy; or

(4) Has demonstrated a pattern or practice of failing to detect or disclose material information in any audited financial reports previously submitted by that individual.

(e) (1) Subject to §§ 2-210 through 2-215 of this article, the Commissioner may hold a hearing to determine whether a certified public accountant is qualified.

(2) After considering the evidence presented at the hearing, the Commissioner shall rule on whether the accountant is qualified for purposes of expressing an opinion on the financial statements in the audited financial report required under § 4-116 of this subtitle.

(3) If the Commissioner finds that the accountant is not qualified, the Commissioner shall require the insurer to replace the accountant with another who is qualified as provided under this section.

Annotated Code of Maryland Insurance Article Title 14

Subtitle 1 – Nonprofit Health Service Plans

§ 14-121 Financial Filings

(a) (1) On or before March 1 of each year, unless the Commissioner extends the time for good cause, each nonprofit health service plan shall file with the Commissioner a complete statement of its financial condition, transactions, and affairs for the immediately preceding calendar year.



(2) The annual statement shall contain the information required by the Commissioner and be certified by an independent certified public accountant.

(3) The applicable fee required by § 2-112 of this article shall be submitted at the same time as the statement.

(4) Unless the Commissioner extends the time for filing, a nonprofit health service plan that fails to file an annual statement on or before March 10 shall pay a penalty of:

(i) $100 for each day from March 1 to March 10, both inclusive; and

(ii) $150 for each day from March 11 to the day before the Commissioner receives the statement, both inclusive.

(b) At any time, the Commissioner may require a nonprofit health service plan doing business in the State to file an interim statement containing the information that the Commissioner considers necessary.

(c) (1) (i) This paragraph does not apply to:

1. A health maintenance organization required to file an annual report under § 19-717 of the Health - General Article; or

2. An authorized insurer required to file an annual report under § 4-116 of this article.

(ii) On or before June 30 of each year, unless the Commissioner extends the time for good cause, each nonprofit health service plan shall file with the Commissioner an audited financial report for each affiliate and subsidiary owned by or under the control of the nonprofit health service plan during the immediately preceding calendar year.

(2) The report shall contain the information required by the Commissioner and be certified by an independent certified public accountant as to the financial condition, transactions, and affairs of each affiliate and subsidiary for the immediately preceding calendar year.

(3) Unless the Commissioner extends the time for filing, a nonprofit health service plan that fails to file an audited financial report on or before July 10 shall pay a penalty of:

(i) $100 for each day from June 30 to July 10, both inclusive; and

(ii) $150 for each day from July 11 to the day before the Commissioner receives the report, both inclusive.

(d) As part of the audited financial report required under subsection (c) of this section, each nonprofit health service plan shall:

(1) file a consolidated financial statement that:

(i) Covers the nonprofit health service plan and each of its affiliates and subsidiaries; and

(ii) Consists of the financial statements of the nonprofit health service plan and each of its affiliates and subsidiaries, certified by an independent certified public accountant



as to the financial condition, transactions, and affairs of the plan and its affiliates and subsidiaries for the immediately preceding calendar year;

(2) Provide a list of:

(i) The names and addresses of and biographical information about the members of the board of directors of the nonprofit health service plan;

(ii) The total compensation, including all cash and deferred compensation in addition to salary, of:

1. Each member of the board of directors of the nonprofit health service plan;

2. Each officer of the nonprofit health service plan or any affiliate or subsidiary of the plan; and

3. Any employee of the nonprofit health service plan or any affiliate or subsidiary of the plan designated by the Commissioner; and

(3) Provide any other information or documents necessary for the Commissioner to ensure compliance with this subtitle.

(e) The statements and reports required under this section shall be in the form required by the Commissioner.

(f) Whenever a corporation authorized under this subtitle makes a change that would result in a change in any of the information required under subsection (d) of this section, the corporation shall notify the Commissioner within 30 days after the change becomes effective.

Annotated Code of Maryland Insurance Article Title 14

Subtitle 4 – Dental Plan Organization Act

§ 14-413 Annual Reports

(a) On or before April 1 of each year, each dental plan organization shall file with the Commissioner a report, on the form that the Commissioner provides, that covers the activities of the dental plan organization for the preceding calendar year.

(b) The report required under subsection (a) of this section shall include:

(1) A financial statement of the dental plan organization, including its balance sheet, receipts, and disbursements for the preceding year certified by a certified public accountant;

(2) Any significant modification of information submitted with the application for a certificate of authority;

(3) The number of individuals who became enrollees during the year, the number of enrollees as of the end of the year, and the number of enrollments terminated during the year;

(4) A description of the enrollee complaint system, including:

(i) The procedures of the complaint system;



(ii) The number of written complaints handled through the complaint system;

(iii) A summary of causes underlying the complaints; and

(iv) The current number, amount, and disposition of malpractice claims settled during the year by the dental plan organization and any of the dentists used by it; and

(5) Any other information about the performance of the dental plan organization that the Commissioner requires.

Annotated Code of Maryland Health – General Article 19

Health Maintenance Organizations

§ 19-717 Annual Reports

(a) Except as provided in subsection (b) of this section and unless, for good cause shown, the Commissioner extends the time for a reasonable period:

(1) On or before March 1 of each year, each health maintenance organization shall file with the Commissioner a report that shows the financial condition of the health maintenance organization on the last day of the preceding calendar year and any other information that the Commissioner requires by rule or regulation; and

(2) On or before June 1 of each year, each health maintenance organization shall file with the Commissioner an audited financial report for the preceding calendar year.

(b) A health maintenance organization that has a fiscal year other than the calendar year may request permission to file both the annual report required under subsection (a)(1) of this section and the audited financial report required under subsection (a)(2) of this section at the end of its fiscal year rather than the preceding calendar year. If the Commissioner grants this permission, the health maintenance organization shall file the annual report with the Commissioner within 60 days after the end of its fiscal year, and the health maintenance organization shall file the audited financial report with the Commissioner within 150 days after the end of its fiscal year.

(c) The annual report shall:

(1) Be on the forms that the Commissioner requires; and

(2) Include a description of any changes in the information submitted under § 19-708 of this subtitle.

(d) The audited financial report shall:

(1) Be on the forms that the Commissioner requires; and

(2) Be certified by an audit of a certified public accounting firm.

(e) Each financial report filed under this section is a public record.



Code of Maryland (Applies to Health Maintenance Organizations)

31.12.01.11 Annual Report

A. Each licensed health maintenance organization, unless the time is extended for a good cause shown, shall file a report with the Commissioner, certified by an audit of a certified public accounting firm showing its financial condition on the last day of the preceding calendar year. The report shall be on the form adopted by the Commissioner and shall annually be filed with the Commissioner on or before the first day of March. The report shall be supplemented with a description of any changes in the information submitted with the last previous annual report or with the HMO’s original application for a certificate of authority.

B. If the fiscal year of the HMO does not coincide with the calendar year, at the request of the HMO the Commissioner may, in his discretion, accept a certified audit showing the HMO’s financial condition at the end of its last completed fiscal year, the audit to be accomplished by an annual report for the corresponding fiscal year to be filed on or before the 60th day following the last day of the fiscal year. As a condition for granting this exception, the Commissioner will require the HMO to also file on or before the first day of the following March an unaudited calendar year report.

Code of Maryland (Applies to Managed Care Organizations)

31.12.06.04 Annual and Interim Financial Reports

A. On or before March 1 of each year, each MCO operating under a contract with the Department shall file, in duplicate, a report that includes a consolidated financial statement.

B. The Commissioner may require interim statements of the MCO’s, on such points as the Commissioner deems necessary and proper at any time during the period between the filing of annual statements.

C. The report shall:

(1) Cover the MCO and all of its affiliates and subsidiaries;

(2) Consist of the financial statements of the MCO, and all of its affiliates and subsidiaries, prepared in accordance with statutory accounting principles on a form approved by the Commissioner and certified by an independent certified public accountant as to the financial condition, transactions, and affairs of the MCO and its affiliates and subsidiaries for the immediate preceding calendar year;

(3) Provide a list of the total compensation from the MCO, including all cash and deferred compensation stock, and stock options in addition to salary, of each member of the board of directors of the MCO, and each senior officer of the MCO, or any subsidiary of the MCO, as designated by the Commissioner;

(4) Contain loss ratios for medical assistance business as required under Insurance Article, § 15-605, Annotated Code of Maryland

(5) Be on the form adopted by the Commissioner;



(6) Be supplemented with a description of any changes in the information submitted with the last previous annual report or with the MCO’s original application for financial compliance; and

(7) Provide any other information or documents necessary to assure compliance with Health-General Article, Title 15, Subtitle 1, Annotated Code of Maryland.



MASSACHUSETTS REGULATIONS

Code of Massachusetts Regulations 211 CMR.—Division of Insurance

211 CMR 23.00 — Audits of Insurers by Independent Certified Public Accountants for Years Ending 1991 and After

211 CMR 23.01 Authority

211 CMR 23.00 et seq. is promulgated by the Commissioner of Insurance pursuant to M.G.L. c. 175, §§ 4 and 25.

211 CMR 23.02 Purpose

The purpose of 211 CMR 23.00 et seq. is to improve the Division’s surveillance of the financial condition of insurers by requiring an annual audit by independent certified public accountants (CPA) of the financial statements reporting the financial position and the results of operations of insurers. 211 CMR 23.00 will assure that CPA audits are conducted which will enhance the protection of Massachusetts policyholders.

211 CMR 23.00 et seq. shall not prohibit, preclude, or in any way limit the Commissioner of Insurance, or her or his designee, from ordering or conducting or performing examinations of insurers under the Commissioner’s jurisdiction as to practices, procedures, financial condition, market conduct and other aspects of the operations of such insurers.

211 CMR 23.03 Applicability

(1) Every insurer shall be subject to 211 CMR 23.00 et seq.

(2) Exemptions. Insurers having both direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from 211 CMR 23.00 et seq. for such year; except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more and insurers having both premiums written in Massachusetts of $100,000 or more in any year and having 1,000 or more Massachusetts policyholders at the end of any year shall not be so exempt.

(a) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with 211 CMR 23.00 et seq. if the Commissioner finds, upon review of the application, that compliance with 211 CMR 23.00 et seq. would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from 211 CMR 23.00 et seq. such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with M.G.L. c. 30A and the practices of the Division pertaining to administrative hearing procedures.

(b) Insurers not retaining a certified public accountant on the effective date of 211 CMR 23.00 et seq. who qualifies as independent shall meet the following schedule for compliance unless the Commissioner permits otherwise.

1. As of December 31, 1991, file with the Commissioner;

a. Report of independent certified public accountant;

b. Audited balance sheet;




d. For the year ending December 31, 1992 and each year thereafter, insurers shall file all reports required by 211 CMR 23.00 et seq. unless the Commissioner permits otherwise.

211 CMR 23.04 Definitions

Accountant and Independent Certified Public Accountant: An independent certified public accountant or firm licensed to practice in the Commonwealth of Massachusetts or in any state with similar licensing requirements and a member in good standing of the American Institute of Certified Public Accountants and in all states in which they are licensed to practice. It shall also mean, for Canadian and British companies, a Canadian or British chartered accountant.

Audited financial report: Those items specified in 211 CMR 23.00.

Commissioner: The Commissioner of Insurance or his or her designee.

Division: The Division of Insurance of the Commonwealth of Massachusetts.

Insurer: Any insurance company doing business in the Commonwealth of Massachusetts under M.G.L. c. 175 and includes, but is not limited to, all life, accident and health, property and liability, title, “b” reinsurers and surplus line companies regulated by the Division of Insurance of the Commonwealth of Massachusetts. Insurer shall also include reciprocal insurance exchanges as defined in M.G.L. c. 175, § 94A.

Workpapers: The records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination of the financial statements of an insurer. Workpapers include, but are not limited to, audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, reconciliations, flow charts, abstracts of company documents and schedules or commentaries, copies of company records or other documents prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer.

211 CMR 23.05 Filing of Annual Audited Financial Reports

(1) Filing. Beginning with the audited financial report for the year ending December 31, 1991, all insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with 90 days advance notice to the insurer.

The annual audited financial report shall be considered part of the insurer’s annual statement filing, except as to the due dates provided in 211 CMR 23.00 et seq., as provided by M.G.L. c. 175, § 25 and shall be subject to the penalties provided by M.G.L. c. 175, § 26.

(2) Extensions. Extensions of the June 1 filing date may be granted by the Commissioner for 30-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for any extension must be submitted in writing not less than ten days prior to the due date of the audited financial report in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.



211 CMR 23.06 Contents of Annual Audited Financial Report

The annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Division.


(1) Opinion of independent certified public accountant.

(2) Balance sheet reporting admitted assets, liabilities, capital and surplus.

(3) Statement of operations.

(4) Statement of cash flows.

(5) Statement of changes in capital and surplus.

(6) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

(a) A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to M.G.L. c. 175, § 25 with a written description of the nature of these differences.

(b) A summary of ownership and relationships of the insurer and all affiliated companies.

(7) Report on Significant Deficiencies in Internal Controls.

(8) Accountant’s Letter

(9) The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.)

211 CMR 23.07 Designation of Independent Certified Public Accountant

Each insurer required by 211 CMR 23.00 et seq. to file an annual audited financial report must within 60 days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to as the “accountant”) retained to conduct the annual audit set forth in 211 CMR 23.00 et seq. Insurers not retaining an independent certified public accountant on the effective date of 211 CMR 23.00 et seq. shall register the name and address of their retained certified public accountant not less than six months before the date when the first audited financial report is to be filed. Insurers shall notify the Commissioner of the engagement of an accountant within 30 days of such appointment if such accountant was not the accountant for purposes of 211 CMR 23.00 et seq. for the immediately preceding year.

The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Insurance Code and 211 CMR that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in the terms of their



conformity to the statutory accounting practices prescribed or otherwise permitted by the Division, specifying such exceptions as he or she may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five business days notify the Division of this event. The insurer shall also furnish the Commissioner with a separate letter within ten business days of the above notification stating whether in the 24 months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practice, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to 211 CMR 23.07 include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not stating the reasons for which the accountant does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

211 CMR 23.08 Qualifications of Independent Certified Public Accountant

(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not:

(a) duly licensed to practice in Massachusetts or in a state with similar licensing requirements and

(b) in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice,

For a Canadian or British company, the Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not a chartered accountant.

(2) Except as otherwise provided herein, an independent certified public accountant shall be recognized as independent and qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and rules and regulations and Code of Ethics and Rules of Professional Conduct of the Massachusetts Board of Public Accountancy (or similar code).

(3) No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The commissioner may consider the following factors in determining if the relief should be granted:






The requirements of 211 CMR 23.08(3) shall become effective for years beginning after December 31, 1992.



(b) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this 211 CMR 19.00 et seq. or 211 CMR 23.00 et seq.; or

(c) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of 211 CMR 19.00 et seq. or 211 CMR 23.00 et seq.

(5) The Commissioner may hold a hearing to determine whether a certified public accountant is qualified under 211 CMR 23.00 et seq., whether the accountant is independent, whether an audit performed by the accountant conforms to generally accepted auditing standards, or whether the annual audited financial report on which the accountant has given an opinion presents fairly the financial position and results of operations of the insurer and, considering the evidence presented, may rule that the certified public accountant is not qualified under 211 CMR 23.00 et seq. is not independent for purposes of expressing his opinion, did not conduct the audit in accordance with generally accepted auditing standards or that the annual audited financial report on which the accountant gave his opinion did not fairly present the financial position and results of operations of the insurer. After such finding, the Commissioner may require the insurer to replace the accountant.

211 CMR 23.09 Consolidated or Combined Audits

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, an organizational chart of all companies included in the consolidation shall be filed with the report. In addition, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(1) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

(2) Amounts for each insurer subject to 211 CMR 23.09 shall be stated separately.



(5) A reconciliation shall be included of any differences between the amount shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

211 CMR 23.10 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to 211 CMR 23.06 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally



accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

211 CMR 23.11 Notification of Adverse Financial Condition

The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, immediately, but not later than five business days, to an officer and all members of the board of directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the Massachusetts minimum capital and surplus requirement as of that date. An insurer who has received a report pursuant to 211 CMR 23.11 shall forward a copy of the report to the Commissioner within five business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five business days period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five business days.


If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this 211 CMR 23.00 et seq., becomes aware of facts which might have affected his report, the Division notes the obligation of the accountant to take such action as prescribed in Volume 1, Section UA 561 of the Professional Standards of the American Institute of Certified Public Accountants.

211 CMR 23.12 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Division as required by 211 CMR 23.05 and 23.06. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

211 CMR 23.13 Accountant’s Letter of Qualifications


(1) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Massachusetts Board of Public Accountancy, or similar code.

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within 211 CMR 23.00 et seq. shall be construed as prohibiting the accountant from utilizing such



staff as he or she deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with 211 CMR 23.00 et seq. and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) That the accountant consents to the requirements of 211 CMR 23.14 and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in 211 CMR 23.04.

(5) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants and in all states in which he or she is licensed to practice.

(6) A representation that the accountant is in compliance with the requirements of 211 CMR 23.08.

211 CMR 23.14 Availability and Maintenance of CPA Workpapers

Every insurer required to file an Audited Financial Report pursuant to 211 CMR 23.00 et seq., shall require the accountant to make available for review by the Commissioner or his or her appointed agent, the work papers prepared in the conduct of the examination or audit of the insurer, which shall include its parent and affiliates, as they relate to the examination of the insurer and any communications related to the audit between the accountant and the insurer at the offices of the insurer, at the Division or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Division has filed a Report on Examination covering the period of the audit but no longer than seven years from the date of the audit report.

The aforementioned reviews by the Commissioner shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be confidential. The insurer shall require that the independent certified public accountant provide photocopies of any of the working papers which the Division considers relevant which may be retained by the Division.

211 CMR 23.15 Canadian and British Companies


(2) For such insurers, the letter required in 211 CMR 23.07 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to 211 CMR 23.05 and shall affirm that the opinion expressed is in conformity with such requirements.

211 CMR 23.16 Severability

If any provision of 211 CMR 23.00 et seq. or application thereof to any regulatee is held invalid, such invalidity shall not affect other provisions of 211 CMR 23.00 et seq. and, to that end, the provisions of 211 CMR 23.00 et seq. are severable.



MICHIGAN STATUTES

Insurance Laws CHAPTER 500—Insurance Code of 1956


500.1001 Definitions

As used in this chapter:

(a) “Audited financial report” means the report required in Section 1005 and furnished pursuant to Section 1007.

(b) “Independent public accountant” means an independent certified public accountant or accounting firm in good standing with the American institute of certified public accountants and in good standing in all states in which they are licensed to practice. For Canadian and British companies, “independent public accountant” means a Canadian-chartered or British-chartered accountant.

500.1003 Applicability

(1) This chapter does not apply to any of the following:

(a) Insurers having direct premiums written in this state of less than $1,000,000.00 in any year and having less than 1,000 policyholders in this state at the end of any year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out the responsibilities of this act.

(b) Domestic insurers transacting insurance only in this state that have direct premiums written of less than $10,000,000.00 in any year, write or assume reinsurance for only property-based coverage, and are not part of an insurance holding company system whose members have total direct written premiums of more than $10,000,000.00 in any year, unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out the responsibilities of this act.

(c) Insurers filing audited financial reports in another state, pursuant to the other state’s requirement of audited financial reports that have been found by the Commissioner to be substantially similar to the requirements of this chapter, if a copy of the audited financial report and the evaluation of accounting procedures and systems of internal control report that are filed with the other state are filed with the Commissioner in accordance with the filing dates specified in Sections 1005 and 1017 or, if a Canadian insurer, a copy of the independent public accountants’ reports that are filed with the Canadian Dominion department of insurance, and a copy of any notification of adverse financial condition report filed with the other state is filed with the Commissioner within the time specified in Section 1015.

(2) This chapter does not prohibit, preclude, or in any way limit the Commissioner from ordering, conducting, and performing examinations of insurers under this act.

500.1005 Filing of Annual Audited Reports; Extensions

(1) Each insurer authorized to do business in this state shall have an annual audit by an independent public accountant and shall file an audited financial report with the Commissioner on or before June 1



for the immediately preceding calendar year. With 90 days’ advance notice to the insurer, the Commissioner may require an insurer to file an audited financial report earlier than June 1.

(2) Extensions of the June 1 filing date under subsection (1) may be granted by the Commissioner for 30-day periods upon a showing by the insurer and its independent public accountant of the reasons for requesting the extension and upon a determination by the Commissioner of good cause for an extension. The extension request shall be submitted in writing not less than 10 days prior to the due date and in sufficient detail to permit the Commissioner to make an informed decision on the requested extension.

500.1007 Contents of Annual Audited Reports

(1) The annual audited financial report shall report the insurer’s financial condition as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year then ended in conformity with accounting practices prescribed, or otherwise permitted, by the Commissioner and shall include all of the following:

(a) The report of an independent public accountant.

(b) A balance sheet reporting admitted assets, liabilities, capital, and surplus.

(c) A statement of gain or loss from operations.

(d) A statement of cash flows.

(e) A statement of changes in capital and surplus.

(f) Notes to financial statements. These notes shall be those required by the Commissioner’s Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall include both of the following:

(i) A reconciliation of differences, if any, between the audited financial statements and the annual statement filed pursuant to Section 438 with a written description of the nature of these differences.

(ii) A summary of ownership and relationships of the insurer and all affiliated companies, including a disclosure of all significant intercompany transactions and balances.

(2) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the insurer’s annual statement filed with the Commissioner, may be rounded to the nearest thousand dollars, may combine insignificant amounts, and, except for the first year the insurer is required to file an audited financial report, shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31.

500.1009 Designation of Independent Public Accountant

(1) Each insurer required by this chapter to file an annual audited financial report shall register with the Commissioner in writing, within 60 days after becoming subject to this requirement, the name and address of the independent public accountant or accounting firm retained to conduct the annual audit under this chapter. Insurers not retaining an independent public accountant on the effective date of



this chapter shall register the name and address of their retained independent public accountant not less than 6 months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from the insurer’s independent public accountant and shall file a copy with the Commissioner stating that the independent public accountant is aware of the insurance code’s provisions and the rules and regulations of the state of domicile’s insurance department that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements as to whether they conform to the accounting practices prescribed or otherwise permitted by that department, specifying the exceptions as he or she believes appropriate.

(3) If the independent public accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall notify the Commissioner within 5 business days of this event. The insurer shall also furnish the Commissioner with a separate letter within 10 business days of the above notification stating whether in the 24 months preceding the event there were any disagreements with the former independent public accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former independent public accountant, would have caused the former independent public accountant to refer to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former independent public accountant’s satisfaction and those not resolved to the former independent public accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level between personnel of the insurer responsible for presentation of its financial statements and personnel of the independent public accounting firm responsible for rendering its report. The insurer shall also request in writing the former independent public accountant to furnish a letter addressed to the insurer stating whether the independent public accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he or she does not agree. The insurer shall furnish this responsive letter from the former independent public accountant to the Commissioner together with its own.

500.1010 Qualifications of Independent Public Accountant

(1) The Commissioner shall not recognize a person or firm as an independent public accountant unless that person or firm is in good standing with the American institute of certified public accountants and in good standing in all states in which the independent public accountant is licensed to practice, or, for a Canadian or British company, unless that person or firm is a chartered accountant.

(2) Except as otherwise provided, a certified public accountant shall be recognized as independent as long as he or she conforms to the standards of his or her profession, as contained in the code of professional ethics of the American Institute of Certified Public Accountants, its rules and regulations, and this state’s board of accountancy’s code of ethics and rules of professional conduct.

(3) An individual independent public accountant or a partner or other person responsible for rendering a report by an independent public accounting firm retained to conduct an annual audit under this chapter shall not act in that capacity for the same insurer for more than 7 consecutive years. Following such a 7-year period of service, the individual independent public accountant or partner or other responsible person for the accounting firm shall not conduct an annual audit under this chapter for the same insurer or its insurance subsidiaries or affiliates for a period of 2 years. An insurer may apply for relief from the Commissioner from this rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if relief should be granted:



(a) Number of partners, expertise of the partners, or the number of insurance clients in the independent public accounting firm.

(b) The insurer’s premium volume.


(4) The Commissioner shall not recognize as a qualified independent public accountant, or accept an annual audited financial report, prepared in whole or in part by an individual who has done any of the following:

(a) Been convicted of fraud, bribery, a violation of chapter 96 of title 18 of the United States Code, 18 U.S.C. 1961 to 1968, or any dishonest conduct or practices under federal or state law.

(b) Been found to have violated the insurance laws of this state with respect to any previous reports submitted under this chapter.

(c) Has failed to detect or disclose material information in 1 or more previous reports filed under this chapter.

(5) The Commissioner may hold a public hearing pursuant to the administrative procedures act of 1969, Act No. 306 of the Public Acts of 1969, being Sections 24.201 to 24.328 of the Michigan Compiled Laws, to determine whether a certified public accountant is qualified. After considering the evidence presented, the Commissioner may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this chapter and may require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this chapter.

500.1011 Consolidated Audits

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of affiliates that uses a pooling or 100% reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. If approval is given, a columnar consolidating or combining work sheet shall be filed with the report, as follows:

(a) Amounts shown on the consolidated or combined audited financial report shall be shown on the work sheet.

(b) Amounts for each insurer subject to this section shall be stated separately.

(c) Noninsurance operations may be shown on the work sheet on a combined or individual basis.


(e) Any differences between the amounts shown in the individual insurer columns of the work sheet and comparable amounts shown on the annual statements of the insurers shall be reconciled.

500.1015 Report of Adverse Financial Condition

(1) An insurer required to furnish the annual audited financial report shall require the independent public accountant to report in writing within 5 business days to the Board of Directors or its audit committee



any determination by that independent public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the requirements of Section 408 or 410 as of that date. The insurer shall furnish a copy of this report to the Commissioner within 5 business days of receipt of the report and shall provide the independent public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent public accountant fails to receive the evidence within the required 5-business day period, the independent public accountant shall furnish a copy of its report to the Commissioner within the next 5 business days.

(2) An independent public accountant is not liable to any person for a statement or report made in connection with this section if the statement or report is made in good faith in compliance with subsection (1).

500.1017 Report on Insurers’ Deficiencies

(1) The independent public accountant shall communicate significant deficiencies in the insurer’s internal control structure, known as reportable conditions, noted during a financial statement audit to the appropriate parties within an insurer. If the independent public accountant does not identify significant deficiencies in the insurer’s internal control structure, a report shall not be issued.

(2) In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with the written report prepared by the independent public accountant describing significant deficiencies in the insurer’s internal control structure noted by the independent public accountant during the audit. If significant deficiencies are noted, the written report shall be filed by the insurer with the Commissioner within 60 days after the filing of the annual audited financial statements. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the independent public accountant’s report.

500.1019 Letter of Accountant’s Qualifications

The independent public accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating all of the following:

(a) That the independent public accountant is independent of the insurer and conforms to the standards of his or her profession.

(b) The general background and experience and the experience in insurer audits of the staff assigned to the annual audited financial report and whether each is an independent public accountant. Nothing within this chapter shall be construed as prohibiting the independent public accountant from using the staff he or she considers appropriate if the use is consistent with the standards prescribed by generally accepted auditing standards.

(c) That the independent public accountant understands the annual audited financial report, and his or her opinion on the report, will be filed in compliance with this chapter, and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of the insurer.

(d) That the independent public accountant consents to the requirements of Section 1021 and that the independent public accountant consents and agrees to make available for review by the Commissioner, his or her designee, or his or her appointed agent, the work papers described in Section 1021.



(e) A representation that the independent public accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American institute of certified public accountants.

(f) A representation that the independent public accountant is in compliance with the requirements of Section 1010.

500.1021 Maintenance of Work Papers

(1) Work papers are the records kept by the independent public accountant of the procedures followed, tests performed, information obtained, and conclusions reached pertinent to his or her examination of the insurer’s financial statements. Work papers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents, and schedules or commentaries prepared or obtained by the independent public accountant in the course of his or her examination of the insurer’s financial statements and that support his or her opinion.

(2) Each insurer required to file an audited financial report pursuant to this chapter shall require the independent public accountant to make available for review by the Commissioner the work papers prepared in the conduct of his or her examination and any communications between the independent public accountant and the insurer related to the audit at the Commissioner’s offices or at any other reasonable place designated by the Commissioner. The insurer shall require that the independent public accountant retain the audit work papers and communications for a period of not less than 5 years after the period reported on.

(3) In a review by the Commissioner under subsection (2), it shall be agreed that photocopies of pertinent audit work papers may be made and retained by the Commissioner. A review by the Commissioner under subsection (2) shall be considered an investigation and all working papers and communications obtained during the course of the investigation shall be confidential.

(4) In the examination or other investigation or determination of the financial condition of an insurer pursuant to this act, the Commissioner shall utilize the audit work papers and other documents prepared by the independent public accountant and shall avoid duplication of the work of the independent public accountant unless the Commissioner in the reasonable exercise of his or her discretion finds that additional examination is necessary in order to determine whether an insurer is safe, reliable, and entitled to public confidence.

500.1023 Exemptions

(1) Upon an insurer’s written application, the Commissioner may grant an exemption from compliance with this chapter if the Commissioner finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within 10 days from a denial of an insurer’s written request for an exemption from this chapter, the insurer may request in writing a hearing on its application for an exemption. The hearing shall be held in accordance with the administrative procedures act of 1969, Act No. 306 of the Public Acts of 1969, being Sections 24.201 to 24.328 of the Michigan Compiled Laws.

(2) Upon an insurer’s written application, the Commissioner, for a specified period or periods, may permit an insurer to file annual audited financial reports on some basis other than a calendar year basis. Within 10 days from a denial of such a written request, the insurer may request in writing a



hearing on its application. The hearing shall be held in accordance with Act No. 306 of the Public Acts of 1969.

(3) Domestic insurers retaining a certified public accountant on the effective date of this chapter who qualifies as independent shall comply with this chapter for the year ending December 31, 1992 and each year thereafter unless the Commissioner permits otherwise.

(4) Domestic insurers not retaining a certified public accountant on the effective date of this chapter who qualifies as independent shall meet the following schedule for compliance unless the Commissioner permits otherwise:

(a) As of December 31, 1992, file with the Commissioner all of the following:

(i) Report of independent public accountant.

(ii) Audited balance sheet.

(iii) Notes to audited balance sheet.

(b) For the year ending December 31, 1993 and each year thereafter, file with the Commissioner all reports required by this chapter.

(5) Foreign insurers shall comply with this chapter for the year ending December 31, 1993 and each year thereafter, unless the Commissioner permits otherwise.

500.1025 Canadian and British Companies

(1) For Canadian and British insurers, the annual audited financial report is the annual statement of total business, on the form filed by those companies with their domiciliary supervision authority, and duly audited by an independent chartered accountant.

(2) For insurers listed in subsection (1), the independent public accountant’s letter required in Section 1009 shall state that the independent public accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Section 1005 and shall affirm that the opinion expressed is in conformity with those requirements.



MINNESOTA STATUTES

Insurance Laws Chapter 60A — General Insurance Powers

60A.129 Loss Reserves and Annual Audited Financial Reports

Subd. 3. Annual Audit

(a) Every insurance company doing business in this state, including fraternal benefit societies, reciprocal exchanges, service plan corporations licensed pursuant to chapter 62C, and legal service plans licensed pursuant to chapter 62G, unless exempted by the commissioner pursuant to subdivision 5, paragraph (a), or by subdivision 7, shall have an annual audit of the financial activities of the most recently completed calendar year performed by an independent certified public accountant, and shall file the report of this audit with the commissioner on or before June 1 for the immediately preceding year ending December 31. The commissioner may require an insurer to file an audited financial report earlier than June 1 with 90 days advance notice to the insurer.

Extensions of the June 1 filing date may be granted by the commissioner for 30-day periods upon a showing by the insurer and its independent certified public accountant of the reasons for requesting the extension and a determination by the commissioner of good cause for the extension.

The request for extension must be submitted in writing not less than ten days before the due date in sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

(b) Foreign and alien insurers filing audited financial reports in another state under the other state’s requirements of audited financial reports which have been found by the commissioner to be substantially similar to these requirements are exempt from this subdivision if a copy of the audited financial report, accountant’s letter of qualifications, and report on significant deficiencies in internal controls, which are filed with the other state, are filed with the commissioner in accordance with the filing dates specified in paragraphs (a) and (l), (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance); and a copy of any notification of adverse financial condition report filed with the other state is filed with the commissioner within the time specified in paragraph (k). This paragraph does not prohibit or in any way limit the commissioner from ordering, conducting, and performing examinations of insurers under the authority of this chapter.

(c) (i) The annual audited financial report shall report, in conformity with statutory accounting practices required or permitted by the commissioner of insurance of the state of domicile, the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year ended. The annual audited financial report shall include a report of an independent certified public accountant; a balance sheet reporting admitted assets, liabilities, capital, and surplus; a statement of operations; a statement of cash flows; a statement of changes in capital and surplus; and notes to the financial statements.

(ii) The notes required under item (i) shall be those required by the appropriate National Association of Insurance Commissioners annual statement instructions and National Association of Insurance Commissioners Accounting Practices and Procedures Manual and shall include reconciliation of differences, if any, between the audited statutory financial



statements and the annual statement filed under Section 60A.13, subdivision 1, with a written description of the nature of these differences.

(iii) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. In the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted. The amounts may be rounded to the nearest $1,000, and all insignificant amounts may be combined.

(d) Each insurer required by this section to file an annual audited financial report must notify the commissioner in writing of the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit within 60 days after becoming subject to the annual audit requirement. The insurer shall obtain from the accountant a letter which states that the accountant is aware of the provisions that relate to accounting and financial matters in the insurance laws and the rules of the insurance regulatory authority of the state of domicile. The letter shall affirm that the accountant will express an opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance regulatory authority, specifying the exceptions believed to be appropriate. A copy of the accountant’s letter shall be filed with the commissioner.

(e) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall notify the commissioner of this event within five business days. Within ten business days of this notification, the insurer shall also furnish the commissioner with a separate letter stating whether in the 24 months preceding this event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of the former accountant, would have caused that person to make reference to the subject matter of the disagreement in connection with the opinion. The disagreements required to be reported in response to this paragraph include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those disagreements between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for any disagreement. The insurer shall furnish this responsive letter from the former accountant to the commissioner together with its own.

(f) The commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or for a Canadian or British company, that is not a chartered accountant. Except as otherwise provided, an independent certified public accountant shall be recognized as qualified as long as the person conforms to the standards of the person’s profession, as contained in the code of professional ethics of the American Institute of Certified Public Accountants and the rules of professional conduct of the Minnesota board of public accountancy or similar code.

(g) No partner or other person responsible for rendering a report for calendar year 1997 and thereafter may act in that capacity for more than seven consecutive years. Following any period of service, the person shall be disqualified from acting in that or a similar capacity for the same company or its



insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The commissioner may consider the number of partners, the expertise of the partners or the number of insurance clients in the currently registered firm, the premium volume of the insurer, or the number of jurisdictions in which the insurer transacts business in determining if the relief should be granted.

(h) The commissioner shall not recognize as a qualified independent certified public accountant, nor accept any audited financial report, prepared in whole or in part by any natural person who has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, United States Code, title 18, Sections 1961 to 1968, or any dishonest conduct or practices under federal or state law, has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this section, or has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this section.

(i) The commissioner, after notice and hearing under chapter 14, may find that the accountant is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report. The commissioner may require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this section.

(j) Financial statements furnished under paragraph (a), shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards and consideration should be given to other procedures illustrated in the Financial Condition Examiners Handbook, issued by the National Association of Insurance Commissioners, as the independent certified public accountant considers necessary.

(k) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to provide written notice within five business days to the board of directors of the insurer or its audit committee of any determination by that independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of Section 60A.07 as of that date. An insurer required to file an annual audited financial report who received a notification of adverse financial condition from the accountant shall file a copy of the notification with the commissioner within five business days of the receipt of the notification. The insurer shall provide the independent certified public accountant making the notification with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five-day period, the independent certified public accountant shall furnish to the commissioner a copy of the notification to the board of directors or its audit committee within the next five business days. No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with this paragraph if the statement is made in good faith in compliance with this paragraph. If the accountant becomes aware of facts which might have affected the audited financial report after the date it was filed under this section, the accountant shall take the action prescribed by Professional Standards issued by the American Institute of Certified Public Accountants.

(l) In addition to the annual audited financial statements, each insurer shall furnish the commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. The accountant shall follow the professional standards issued by the American Institute of Certified Public Accountants, which require an accountant to communicate significant deficiencies, known as reportable conditions, noted



during a financial statement audit, to the appropriate parties within an entity. No report shall be issued if the accountant does not identify significant deficiencies. Any such report by the accountant describing significant deficiencies in the insurer’s internal control structure, shall be filed annually by the insurer with the commissioner within 60 days after the filing of the annual audited financial statements. This report on internal control shall be in the form prescribed by generally accepted auditing standards. The insurer shall provide the commissioner with a description of remedial actions taken or proposed to correct significant deficiencies, if those actions are not described in the accountant’s report.

(m) The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating that the accountant is independent with respect to the insurer and conforms to the standards of the accountant’s profession as contained in the code of professional ethics of the American Institute of Certified Public Accountants and the rules of professional conduct of the Minnesota board of accountancy or similar code; the background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant; that the accountant understands that the annual audited financial report and the opinion thereon will be filed in compliance with this statute and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers; that the accountant consents to the requirements of paragraph (n) and that the accountant consents and agrees to make available for review by the commissioner, or the commissioner’s designee or appointed agent, the workpapers, as defined in paragraph (n); a representation that the accountant is properly licensed by the appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and, a representation that the accountant complies with paragraph (f). Nothing in this section shall be construed as prohibiting the accountant from utilizing staff the accountant deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(n) Workpapers are the records kept by the independent certified public accountant of the procedures followed, tests performed, information obtained, and conclusions reached pertinent to the independent certified public accountant’s examination of the financial statements of an insurer. Workpapers may include audit planning documents, work programs, analyses, memoranda, letters of confirmation and representation, management letters, abstracts of company documents, and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the examination of the financial statements of an insurer and that support the accountant’s opinion. Every insurer required to file an audited financial report shall require the accountant, through the insurer, to make available for review by the examiners the workpapers prepared in the conduct of the examination and any communications related to the audit between the accountant and the insurer. The workpapers shall be made available at the offices of the insurer, at the offices of the commissioner, or at any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the commissioner has filed a report on examination covering the period of the audit but no longer than seven years after the period reported upon. In the conduct of the periodic review by the examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the commissioner. These copies shall be part of the commissioner’s workpapers and shall be given the same confidentiality as other examination workpapers generated by the commissioner.

(o) (i) In the case of Canadian and British insurers, the annual audited financial report means the annual statement of total business on the form filed by these companies with their domiciliary supervision authority and duly audited by an independent chartered accountant.



(ii) For these insurers, the letter required in paragraph (d), shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the commissioner under paragraph (a), and shall affirm that the opinion expressed is in conformity with those requirements.

(p) The audit report of the independent certified public accountant that performs the audit of an insurer’s annual statement as required under paragraph (a), shall contain a statement as to whether anything, in connection with the audit, came to the accountant’s attention that caused the accountant to believe that the insurer failed to adopt and consistently apply the valuation procedures as required by Sections 60A.122 and 60A.123.

Subd. 4. Examinations

(a) The commissioner or a designated representative shall determine the nature, scope, and frequency of examinations under this section conducted by examiners under Section 60A.031. These examinations may cover all aspects of the insurer’s assets, condition, affairs, and operations and may include and be supplemented by audit procedures performed by independent certified public accountants. Scheduling of examinations will take into account all relevant matters with respect to the insurer’s condition, including results of the National Association of Insurance Commissioner, Insurance Regulatory Information Systems, changes in management, results of market conduct examinations, and audited financial reports. The type of examinations performed by examiners under this section shall be compliance examinations, targeted examinations, and comprehensive examinations.

(b) Compliance examinations will consist of a review of the accountant’s workpapers defined under this section and a general review of the insurer’s corporate affairs and insurance operations to determine compliance with the Minnesota insurance laws and the rules of the department of commerce. The examiners may perform alternative or additional examination procedures to supplement those performed by the accountant when the examiners determine that the procedures are necessary to verify the financial condition of the insurer.

(c) Targeted examinations may cover limited areas of the insurer’s operations as the commissioner may deem appropriate.

(d) Comprehensive examinations will be performed when the report of the accountant as provided for in subdivision 3, paragraph (g), the notification required by subdivision 3, paragraph (h), the results of compliance or targeted examinations, or other circumstances indicate in the judgment of the commissioner or a designated representative that a complete examination of the condition and affairs of the insurer is necessary.

(e) Upon completion of each targeted, compliance, or comprehensive examination, the examiner appointed by the commissioner shall make a full and true report on the results of the examination. Each report shall include a general description of the audit procedures performed by the examiners and the procedures of the accountant that the examiners may have utilized to supplement their examination procedures and the procedures that were performed by the registered independent certified public accountant if included as a supplement to the examination.

Subd. 5. Consolidated Filing

(a) The commissioner may allow an insurer to file a consolidated loss reserve certification required by subdivision 2, in lieu of separate loss certifications and may allow an insurer to file consolidated or combined audited financial statements required by subdivision 3, paragraph (a), in lieu of separate annual audited financial statements, where it can be demonstrated that an insurer is part of a group of



insurance companies that has a pooling or 100 percent reinsurance agreement which substantially affects the solvency and integrity of the reserves of the insurer and the insurer cedes all of its direct and assumed business to the pool. An affiliated insurance company not meeting these requirements may be included in the consolidated or combined audited financial statements, if the company’s total admitted assets are less than five percent of the consolidated groups total admitted assets. If these circumstances exist, then the company may file a written application to file a consolidated loss reserve certification and/or consolidated or combined audited financial statements. This application shall be for a specified period.

(b) Upon written application by a domestic insurer, the commissioner may authorize the domestic insurer to include additional affiliated insurance companies in the consolidated or combined audited financial statements. Foreign insurers must obtain the prior written authorization of the commissioner of their state of domicile in order to submit an application of authority to file consolidated or combined audited financial statements. This application shall be for a specified period.

(c) A consolidated annual audit filing shall include a columnar consolidated or combining worksheet. Amounts shown on the audited consolidated or combined financial statement shall be shown on the worksheet. Amounts for each insurer shall be stated separately. Noninsurance operations may be shown on the worksheet on a combined or individual basis. Explanations of consolidating or eliminating entries shall be shown on the worksheet. A reconciliation of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statement of the insurers shall be included on the worksheet.

Subd. 6. Penalties

No annual statement, report, or document related to the business of insurance shall be filed with the commissioner or issued to the public if it is signed by anyone who is represented in the instrument as an “actuary” or “accountant,” unless the person is qualified as defined by this section. A violation of this subdivision is a violation of Section 72A.19 and punishable in accordance with Section 72A.25.

Subd. 7. Exemptions

(a) Upon written application of any insurer, the commissioner may grant an exemption from compliance with the provisions of this section. In order to receive an exemption, an insurer must demonstrate to the satisfaction of the commissioner that compliance would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for specified periods. Within ten days from the denial of an insurer’s written request for an exemption, the insurer may request in writing a hearing on its application for an exemption. This hearing shall be held in accordance with chapter 14. Upon written application of any insurer, the commissioner may permit an insurer to file annual audited financial reports on some basis other than a calendar year basis for a specified period. No exemption shall be granted until the insurer presents an alternative method satisfying the purposes of this section. Within ten days from a denial of a written request for an exemption, the insurer may request in writing a hearing on its application. The hearing shall be held in accordance with chapter 14.

(b) This section applies to all insurers, unless otherwise indicated, required to file an annual audit by subdivision 3, paragraph (a), except insurers having less than $1,000,000 of direct written premiums in this state in any calendar year and fewer than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of the calendar year, are exempt from this section for that year, unless the commissioner makes a specific finding that compliance is necessary for the commissioner to carry out statutory responsibilities, except that insurers having assumed premiums from reinsurance contracts or treaties of $1,000,000 or more are not exempt.



MISSISSIPPI STATUTES


Audit of Financial Statements of Insurers

83-5-101 Filing of Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report as a supplement to the annual statement on or before June 1 for the year ended December 31 immediately preceding. The Commissioner of Insurance may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days’ advance notice to the insurer.

83-5-102 Definitions

As used in Sections 83-5-102 through 83-5-113, the following terms have the respective meanings herein set forth unless the context shall require otherwise:

(a) “Audited financial report” means and includes those items specified in Section 83-5-103.

(b) “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice.

(c) “Commissioner” means the Commissioner of Insurance.

(d) “Department” means the Department of Insurance.

83-5-103 Reporting Requirements

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance.


(a) Report of independent certified public accountant.

(b) Balance sheet reporting admitted assets, liabilities, capital and surplus.

(c) Statement of operations.

(d) Statement of cash flows.

(e) Statement of changes in capital and surplus.

(f) Notes required by generally accepted accounting principles that shall include:

(i) A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed with the Commissioner along with a written description of the nature of these differences.

(ii) A summary of ownership and relationships of the insurer and all affiliated companies.



(g) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

83-5-104 Exceptions

Every insurer shall be subject to Sections 83-5-101 through 83-5-113. Insurers having direct premiums written of less than One Million Dollars ($1,000,000.00) in any calendar year and less than one thousand (1,000) policyholders or certificate holders of directly written policies nationwide at the end of such calendar year shall be exempt from Sections 83-5-101 through 83-5-113 for such year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities, except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of One Million Dollars ($1,000,000.00) or more will not be so exempt.

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with Sections 83-5-101 through 83-5-113 if the Commissioner finds, upon review of the application, that compliance with Sections 83-5-101 through 83-5-113 would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from Sections 83-5-101 through 83-5-113, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the rules and regulations of the Department of Insurance pertaining to administrative hearing procedures.

Insurers not retaining a certified public accountant as required in Sections 83-5-101 through 83-5-113 who qualify as independent may meet the following schedule for compliance unless the Commissioner of Insurance permits otherwise:

(a) As of December 31, 1991, file with the Commissioner of Insurance:

(i) Report of independent certified public accountant;

(ii) Audited balance sheet;


(b) For the year ending December 31, 1992, and each year thereafter, such insurers shall file all reports required by Sections 83-5-101 through 83-5-113.

83-5-105 Extension of Filing Date


83-5-106 Accountant Registration

Each insurer required to file an annual audited financial report must, within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public



accountant or accounting firm (generally referred to here as the “accountant”) retained to conduct the annual audit set forth in Section 83-5-101. Insurers not previously retaining an independent certified public accountant shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from such accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the insurance code and the rules and regulations of the Department of Insurance that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the department, specifying such exceptions as he may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the Department of Insurance of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

83-5-107 Qualifications of Accountant

(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice.

Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and rules and regulations and code of ethics and rules of professional conduct of the Mississippi State Board of Public Accountancy.

(2) No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted: (a) number of partners, expertise of the partners or the number of insurance clients in the currently registered firm; (b) premium volume of the insurer; or (c) number of jurisdictions in which the insurer transacts business.

(3) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who (a) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal



or state law; (b) has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or (c) has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of Sections 83-5-101 through 83-5-113.

The Commissioner may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual audited financial report made pursuant to Sections 83-5-101 through 83-5-113 and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this section.

83-5-108 Consolidated Reports

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining work sheet shall be filed with the report, as follows:

(a) Amounts shown on the consolidated or combined audited financial report shall be shown on the work sheet.


(c) Noninsurance operations may be shown on the work sheet on a combined or individual basis.


(e) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the work sheet and comparable amounts shown on the annual statements of the insurers.

83-5-109 Scope of Examination and Report

Financial statements furnished pursuant to Section 83-5-103 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

83-5-110 Reporting of Impairment

The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing within five (5) business days to the Board of Directors or its audit committee any reasonable belief by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the state insurance laws as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business days period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.




If the accountant, subsequent to the date of the audited financial report filed pursuant to Sections 83-5-101 through 83-5-113, becomes aware of facts which might have affected his report, the accountant is obligated to take such action as prescribed in Volume I, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

83-5-111 Report on Insurers’ Deficiencies

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions” ) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies if such actions are not described in the accountant’s report.

83-5-112 Letter of Accountant’s Qualifications


(a) That he is independent with respect to the insurer and conforms to the standards of his profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the rules of professional conduct of the appropriate state board of public accountancy, or similar code.

(b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this section shall be construed as prohibiting the accountant from utilizing such staff as he deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

(c) That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this section and that the Commissioner will be relying on this information in the monitoring and regulating of the financial position of insurers.

(d) That the accountant consents to the requirements of Section 83-5-113 and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the work papers, as defined in Section 83-5-113.

(e) A representation that the accountant is properly licensed by an appropriate state licensing authority and that he is a member in good standing in the American Institute of Certified Public Accountants.

(f) A representation that the accountant is in compliance with the requirements of Section 83-5-107.



83-5-113 Records Maintenance

Work papers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained and the conclusion reached pertinent to his examination of the financial statements of an insurer. Work papers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

Every insurer required to file an audited financial report pursuant to Sections 83-5-101 through 83-5-113 shall require the accountant to make available for review by department examiners all work papers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Department of Insurance or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit work papers and communications until the Department of Insurance has filed a report on examination covering the period of the audit.

In the conduct of the aforementioned periodic review by the department examiners, it shall be agreed that photocopies of pertinent audit work papers may be made and retained by the department. Such reviews by the department examiners shall be considered investigations and all work papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination work papers generated by the department.



MISSOURI STATUTES

Insurance Laws TITLE XXIV, Chapter 375 Audited Financial Reports

375.1025 Definitions

As used in Sections 375.1025 to 375.1062, the following terms shall mean:

(1) “Audited financial report,” means and includes those items specified in Section 375.1032;

(2) “Accountant,” and “independent certified public accountant,” an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice. For Canadian and British companies, it means a Canadian-chartered or British-chartered accountant;

(3) “Director,” the Director of the department of insurance;

(4) “Insurer,” an insurer certified to do business in this state pursuant to Section 375.161 or 375.831, RSMo and to companies authorized to transact business in this state pursuant to chapters 354, 376, 377, 378, 379 and 381, RSMo.

375.1028 Scope; Exemptions

1. Sections 375.1025 to 375.1062 shall apply to all insurers as defined by Section 375.1025.

2. Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement for audited financial reports which are found by the Director to be substantially similar to the requirements herein, are exempt from Sections 375.1025 to 375.1062:

(1) A copy of the audited financial report and the evaluation of accounting procedures and systems of internal control report which are filed with such other state are filed with the Director in accordance with the filing dates specified in Sections 375.1030 and 375.1052, respectively. Canadian insurers may submit accountant’s reports as filed with the Canadian Dominion Department of Insurance;

(2) A copy of any notification of adverse financial condition report filed with such other state is filed with the Director within the time specified in Section 375.1045.

(3) Sections 375.1025 to 375.1062 shall not prohibit, preclude or in any way limit the Director from ordering and conducting and performing examinations of insurers under any other applicable law.

375.1030 Filing of Audited Financial Reports; Extensions

1. All insurers shall have an annual audit performed by an independent certified public accountant and shall file an audited financial report with the Director on or before June first with respect to the calendar year ended December thirty-first immediately preceding. The Director may require an insurer to file an audited financial report earlier than June first with ninety days’ advance notice to the insurer.



2. Extensions of the June first filing date may be granted by the Director for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Director of good cause for an extension. The request for extension must be submitted in writing not less than twenty days prior to the due date in sufficient detail to permit the Director to make an informed decision with respect to the requested extension.

375.1032 Reporting Requirements

1. The annual audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of its operation, cash flows and changes in capital and surplus for the previous year ended in conformity with accounting practices prescribed, or otherwise permitted, by law or rule of the department of insurance of the state of domicile of the insurer.

2. The annual audited financial report shall include the following:


(2) Balance sheet reporting admitted assets, liabilities, capital and surplus;




(6) Notes to financial statements. These notes shall be those required by the National Association of Insurance Commissioners’ Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall include:

(a) A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to Section 375.041 and Section 354.105, 354.435, RSMo, 376.350, RSMo, 377.100, 377.380, RSMo, 378.350, RSMo, 379.105, RSMo, 380.051 or 380.482, RSMo, with a written description of the nature of these differences;

(b) A summary of ownership and relationships of the insurer and all affiliated companies; and

(c) A narrative explanation of all significant intercompany transactions and balances.

3. The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Director:

(1) The financial statement shall be comparative, presenting the amounts as of December thirty-first of the current year and the amounts as of the immediately preceding December thirty-first. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted;

(2) Amounts may be rounded to the nearest thousand dollars;

(3) Insignificant amounts may be combined.



375.1035 Accountant Registration

1. Each insurer required by Sections 375.1025 to 375.1057 to file an annual audited financial report shall, within sixty days after becoming subject to such requirement, register with the Director in writing the name and address of its independent certified public accountant or accounting firm (generally referred to in Sections 375.1025 to 375.1057 as the “accountant”) retained to conduct the annual audit set forth in Sections 375.1025 to 375.1057. Any insurer not retaining an independent certified public accountant on the effective date of Sections 375.1025 to 375.1057 shall register the name and address of their retained certified public accountant not less than six months before the date when the first audited financial report is to be filed.

2. The insurer shall obtain a letter from such accountant, and file a copy with the Director stating that the accountant is aware of the provisions of the insurance laws and the rules and regulations of the department of insurance of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department of insurance, specifying such exceptions as he may believe appropriate.

3. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five business days notify the Director of this event. The insurer shall also furnish the Director with a separate letter within ten business days of the notification stating whether in the twenty-four months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. Disagreements required to be reported by this section include both disagreements resolved to the former accountant’s satisfaction, and disagreements not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, between personnel of the insurer responsible for the presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the Director stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree, and the insurer shall furnish such responsive letter from the former accountant to the Director together with its own.

375.1037 Qualifications of Accountant

1. The Director shall not recognize or approve any person or firm as an independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

2. Except as otherwise provided herein, a certified public accountant shall be recognized as independent as long as he conforms to the standards of his profession, as contained in the code of professional ethics of the American Institute of Certified Public Accountants and rules and regulations and code of ethics and rules of professional conduct of the Missouri state board of accountancy, or similar code.

3. No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Director for relief from the above



rotation requirements on the basis of unusual circumstances. The Director may consider the following factors in determining if the relief should be granted:




4. The Director shall not recognize as capable or competent, a certified public accountant, nor shall the Director accept any annual audited financial report, prepared in whole or in part by any person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 to 1968, or any dishonest conduct or practices under federal law or the laws of any state;

(2) Has violated the laws of this state with respect to any previous audited financial report submitted pursuant to Sections 375.1025 to 375.1057 or the similar laws of any other state; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of Sections 375.1025 to 375.1057.

5. The Director shall notify the insurer should he determine that the certified public accountant is not independent or is incapable or incompetent for purposes of expressing his opinion on the financial statements in the annual audited financial report made pursuant to Sections 375.1025 to 375.1057. If the insurer contests such determination, the Director shall hold a hearing to determine whether the certified public accountant is independent, capable and competent, and, considering the evidence presented, may rule that the accountant is not independent or is incapable or incompetent for purposes of expressing his opinion on the financial statements in the annual audited financial report and require the insurer to replace the accountant with another whose relationship with the insurer is independent within the meaning of, or who is capable or competent to perform the requirements of, Sections 375.1025 to 375.1057.

375.1040 Letter of Accountant’s Qualifications


(1) That he is independent with respect to the insurer and conforms to the standards of his profession as contained in the code of professional ethics and pronouncements of the American Institute of Certified Public Accountants, and the rules of professional conduct of the Missouri board of accountancy, or similar code;

(2) The background and experience in general, and the experience in audits of insurers, of the staff assigned to audit the financial statements of the insurer and whether each is an independent certified public accountant;

(3) That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with Sections 375.1025 to 375.1062 and that the Director will be relying on this information in the monitoring and regulation of the financial position of the insurer;



(4) That the accountant consents to the requirements of Section 375.1050 and that the accountant consents and agrees to make available for review by the Director, his designee or his appointed agent, the workpapers, as defined in Section 375.1050;

(5) That the accountant is properly licensed by an appropriate state licensing authority and that he is a member in good standing in the American Institute of Certified Public Accountants;

(6) That the accountant has liability insurance coverage of the lesser of one million dollars or ten percent of the insurer’s admitted assets; and

(7) That the accountant is in compliance with the requirements of Section 375.1037.

375.1042 Scope of Examination and Report

Financial statements of the insurer to be filed pursuant to Section 375.1030 shall be examined by an independent certified public accountant. The examination by the independent certified public accountant of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards and consideration shall be given to procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners.

375.1045 Reporting of Impairment

1. The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Director as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the law as of that date. An insurer who has received a report pursuant to this subsection shall forward a copy of the report to the Director within five business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Director. If the independent certified public accountant fails to receive such evidence within the required five-business-day period, the independent certified public accountant shall furnish to the Director a copy of its report within the next five business days.

2. No independent public accountant shall be liable in any manner to any person for any statement made in connection with subsection 1 of this section if such statement is made in good faith in compliance with subsection 1 of this section.

3. If the accountant, subsequent to the date of the audited financial report filed pursuant to this section, becomes aware of facts which might have affected his report, the department notes the obligation of the accountant to take such action under the professional standards of the American Institute of Certified Public Accountants.

375.1047 Report on Insurer’s Internal Accounting Controls

1. In addition to the annual audited financial report, each insurer shall furnish the Director with a report of evaluation performed by the accountant, in connection with his examination, of the system of internal accounting controls of the insurer.

2. A report of the evaluation by the accountant of the system of internal accounting controls of the insurer, including any remedial action taken or proposed, shall be filed annually by the insurer with the Director within sixty days after the filing of the annual audited financial report. This report shall



follow generally the form for reports on internal control structure related matters noted in an audit described in Volume 1, Section AU 325 of the professional standards of the American Institute of Certified Public Accountants, as may be amended, or in the event that such standards no longer be published, a similar standard to be designated by the Director by duly promulgated regulation.

375.1050 Definition, Availability, and Maintenance of CPA Workpapers

1. As used in this section, “workpapers” are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents, any communications between the accountant and the insurer, and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer which relate to his opinion thereof.

2. Every insurer required to file an audited financial report pursuant to Sections 375.1025 to 375.1062 shall require the accountant to make available for review by the examiners of the department of insurance all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the department of insurance or at any other reasonable place designated by the Director. The insurer shall require that the accountant retain the audit workpapers until the department has filed a report on examination covering the period of the audit, but no longer than seven years from the date of the audit report.

3. In the conduct of any examination or review by the department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Director. Such reviews by the Director or his examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the department.

375.1052 Exceptions

1. Upon written application of any insurer, the Director may grant a temporary exemption from compliance with Sections 375.1025 to 375.1062 if the Director finds, upon review of the application, that compliance with Sections 375.1025 to 375.1062 would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from Sections 375.1025 to 375.1062, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the provisions of chapter 536, RSMo, pertaining to administrative hearing procedures and shall be a public meeting as provided by subdivision (3) of Section 610.010, RSMo.

2. Domestic insurers shall meet the following schedule for compliance with Sections 375.1025 to 375.1062 unless the Director permits otherwise:

(1) As of May 1, 1992, with respect to the calendar year ending on December 31, 1991, each domestic insurer shall file with the Director:


(b) Audited balance sheet;



(c) Notes to audited balance sheet;

(2) For the year ending December 31, 1992, and each year thereafter, such insurers shall file with the Director all reports required by Sections 375.1025 to 375.1062.

3. Foreign insurers shall comply with Sections 375.1025 to 375.1062 for the year ending December 31, 1992, and each year thereafter, unless the Director permits otherwise.

375.1057 Canadian and British Companies

1. In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervisory authority duly audited by an independent chartered accountant.

2. For such Canadian and British insurers, the letter required by Section 375.1035, shall state that the accountant is aware of the requirements relating to the annual audited financial report filed with the Director pursuant to Section 375.1030, and shall affirm that the opinion expressed is in conformity with such requirements.

375.1060 Actuarial Certification of Financial Statement

1. Each health services corporation organized pursuant to Sections 354.010 to 354.380, RSMo, shall file with its annual statement required by Section 354.105, RSMo, and Section 375.041 a certification by a member in good standing of the American Academy of Actuaries.

2. Each life insurance company organized under chapter 376, RSMo, shall file with its annual statement required by Section 375.041 and Section 376.350, RSMo, a certification by a member in good standing of the American Academy of Actuaries. Filing the opinion required by subsection 4 of Section 376.380, RSMo, will satisfy the requirement of this subsection if such opinion also complies with subsection 6 of this section.

3. Each insurance company, other than a life insurance company organized under chapter 379, RSMo, shall file with its annual statement required by Section 375.041 and Section 379.105, RSMo, a certification by a member in good standing of the American Academy of Actuaries.

4. Except as provided by subsection 6 of this section, the certification required of a health services corporation and a life insurance company by subsections 1 and 2 of this section must conform to the National Association of Insurance Commissioners’ Annual Statement Instructions for life and accident and health insurers.

5. Except as provided by subsection 6 of this section, the certification required of an insurance company other than life by subsection 3 of this section must conform to the National Association of Insurance Commissioners’ Annual Statement Instructions for property and casualty insurers.

6. Notwithstanding any provision of the National Association of Insurance Commissioners’ Annual Statement Instruction for life and accident and health or property and casualty insurers, the certification must be made by a member in good standing of the American Academy of Actuaries.

7. The Director shall promulgate such rules as are necessary for the implementation and administration of this section.



375.1062 Severability Provision

If any section or portion of a section of Sections 375.1025 to 375.1062 or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of such section or sections or the applicability of such provision to other persons or circumstances shall not be affected thereby, and the Director shall enforce all remaining requirements of Sections 375.1025 to 375.1062.

(1) Definitions

(A) As used in Section 375.1037.4(3), RSMo, the phrase “has demonstrated a pattern or practice of failing to detect or disclose material information” shall be deemed to include, but not limited to, any accountant or accounting firm that has failed to detect or disclose an insolvency which is later determined to have existed on the “as of” date of a financial report which the accountant of firm has filed under Sections 375.1025-375.1062, RSMo.

(B) As used in Section 375.1032.3(3), RSMo, the term “insignificant” shall mean amounts which, when combined, will not exceed five percent (5%) of the insurer’s total assets.

(C) As used in Section 375.1045.1., RSMo, the term “material” as it relates to a misstatement of an insurer’s financial condition shall mean any misstatement of the insurer’s financial condition–

1. By an amount greater than or equal to twenty percent (>20%) of the insurer’s capital and surplus; or

2. By any amount where the independent certified public accountant determines the misstatement to be material in accordance with SAS No. 47, Audit Risk and Materiality in Conducting an Audit (AU Section 312 of the Professional Standards of the American Institute of Certified Public Accountants).

(D) As used in Section 375.1032.2(6)(c), RSMo, the term “significant” shall mean any intercompany transaction or balance involving an amount greater than or equal to five percent (>5%) of the insurer’s capital and surplus.

(E) As provided in Section 375.1037.3, RSMo, no partner or other person responsible for rendering a report under Sections 375.1025–375.1062, RSMo, may act in that capacity for more than seven (7) consecutive years. For purposes of determining whether a person is competent under this section, a “year” shall be deemed to be that period of time beginning on January 1 and ending on December 31 of a given calendar year, commencing January 1, 1992.

(2) Pursuant to Section 375.1047, RSMo, each insurer shall furnish the Director with a written report prepared by the accountant describing the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report under Section 375.1047, RSMo, needs to be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Director within sixty (60) days after the filing of the annual audited financial statements. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if those actions are not described in the accountant’s report.



MISSOURI REGULATIONS

Title 20, Division 200, Chapter 1

20 CSR 200-1.150 General Standards Applicable to Audited Financial Reports

Purpose: This rule provides interpretations of various terms and provisions used in Sections 375.1025 - 375.1062, RSMo, which govern how the financial reports of insurers are to be audited.

(1) Definitions

(A) As used in Section 375.1037.4(3), RSMo, the phrase “has demonstrated a pattern or practice of failing to detect or disclose material information” shall be deemed to include, but not limited to, any accountant or accounting firm that has failed to detect or disclose an insolvency which is later determined to have existed on the “as of” date of a financial report which the accountant or firm has filed under Sections 375.1025 - 375.1062, RSMo.

(B) As used in Section 375.1032.3(3), RSMo, the term “insignificant” shall mean amounts which, when combined, will not exceed five percent (5%) of the insurer’s total assets.

(C) As used in Section 375.1045.1, RSMo, the term “material” as it relates to a misstatement of an insurer’s financial condition shall mean any misstatement of the insurer’s financial condition —

(1) By an amount greater than or equal to twenty percent (>= 20%) of the insurer’s capital and surplus; or

(2) By any amount where the independent certified public accountant determines the misstatement to be material in accordance with SAS No. 47, Audit Risk and Materiality in Conducting an Audit (AU Section 312 of the Professional Standards of the American Institute of Certified Public Accountants).

(D) As used in Section 375.1032.2(6)(c), RSMo, the term “significant” shall mean any intercompany transaction or balance involving an amount greater than or equal to five percent (>= 5%) of the insurer’s capital and surplus.

(E) As provided in Section 375.1037.3, RSMo, no partner or other person responsible for rendering a report under Sections 375.1025 - 375.1062, RSMo, may act in that capacity for more than seven (7) consecutive years. For purposes of determining whether a person is competent under this section, a “year” shall be deemed to be that period of time beginning on January 1 and ending on December 31 of a given calendar year, commencing January 1, 1992.

(2) Pursuant to Section 375.1047, RSMo, each insurer shall furnish the director with a written report prepared by the accountant describing the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report under Section 375.1047, RSMo, needs to be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the director within sixty (60) days after the filing of the annual audited financial



statements. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if those actions are not described in the accountant’s report.

(3) An insurer may make written application to the director for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, if approved in writing by the director, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(A) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet;

(B) Amounts for each insurer subject to this section shall be stated separately;

(C) Noninsurance operations may be shown on the worksheet on a combined or individual basis;

(D) Explanations of consolidating and eliminating entries shall be included; and

(E) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.



MONTANA REGULATIONS

TITLE 6, Chapter 6 Sub-Chapter 35. — Annual Audited Reports and Establishing Accounting Practices

and Procedures to be Used in Annual Statements

6.6.3501 Definitions

(1) For the purposes of this subchapter, the following terms shall have the following meanings:

(a) “Audited financial report” means and includes those items specified in Rule VIII.

(b) “Accountant” and “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs (AICPA) and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

(c) “Insurer” means a licensed insurer as defined in 33-1-201 and 33-2-1501, MCA, or an authorized insurer as defined in 33-1-201, MCA.

6.6.3502 Purpose and Scope

(1) The purpose of this rule is to improve the surveillance of the financial condition of insurers by the department of insurance of the state of Montana by requiring annual examinations by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(2) Except as specifically provided herein, every insurer shall be subject to these rules. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from these rules for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities). Insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be exempt.

(3) Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from these rules if:

(a) A copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Rules VII, XIII, and XIV, respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian dominion department of insurance).

(b) A copy of any notification of adverse financial condition report filed with such other state is filed with the Commissioner within the time specified in Rule XI. This rule does not prohibit, preclude or in any way limit the Commissioner from ordering and/or conducting and/or performing examinations of insurers under the rules, regulations, practices, and procedures of the department.



6.6.3503 Filing and Extensions for Filing of Annual Audited Financial Reports

(1) All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. Upon 90 days advance notice, for good cause, the Commissioner may require an insurer to file an audited financial report earlier than June 1.

(2) Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant of good cause for an extension. Request for extension must be submitted in writing not less than 10 days prior to the due date and must be in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

6.6.3504 Contents of Annual Audited Financial Report

(1) The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended, all in conformity with statutory accounting practices prescribed, or otherwise permitted, by the department of insurance of the state of domicile.



(b) Balance sheet reporting admitted assets, liabilities, capital, and surplus.




(f) Notes to financial statements. These notes must be the same as those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and must also include:

(i) A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to Sections 33-2-701, 33-4-313, 33-7-118, 33-30-107, and 33-31-211, MCA.

(ii) A summary of ownership and relationships of the insurer and all affiliated companies.

(g) The financial statements included in the audited financial report shall be prepared in a form, and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and the financial statement must be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. In the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.



6.6.3505 Designation of Independent Certified Public Accountant

(1) Each insurer required by these rules to file an annual audited financial report must, within 60 days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit required by these rules. Insurers not retaining an independent certified public accountant on the effective date of this rule shall register the name and address of their retained certified public accountant not less than 6 months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner, stating that the accountant is aware of the provisions of Title 33, MCA, and the administrative rules of the department that relate to accounting and financial matters, and affirming that he will express his opinion on the financial statements in terms of their conformity with the statutory accounting practices prescribed or otherwise permitted by that department, specifying such exceptions as he may believe appropriate.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within 5 business days notify the department of this event. The insurer shall also furnish the Commissioner with a separate letter within 10 business days of the above notification, stating whether in the 24 months preceding such event there were any disagreements with the former accountant on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this rule include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this rule are those that occur at the decision-making level, that is between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner, together with its own.

6.6.3506 Qualifications of Independent Certified Public Accountant

(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the AICPA and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(2) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the code of professional ethics of the AICPA and rules and regulations and code of ethics and rules of professional conduct of the Montana board of public accountants or its counterparts in sister states.

(3) Following the effective date of these rules, no partner or other member of a firm responsible for rendering a report may act in that capacity for more than 7 consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 2 consecutive years. This does not preclude other partners or members of any accounting firm from succeeding to the responsibility for rendering reports. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining whether relief should be granted:




(b) Premium volume of the insurer; and


(4) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report prepared in whole or in part, by any natural person who:




(5) The Commissioner may hold a hearing pursuant to 33-1-701, MCA, to determine whether a certified public accountant is qualified and, after considering the evidence and arguments presented, may decide whether the accountant is qualified to express his opinion on the financial statements in the annual audited financial report filed pursuant to these rules and may require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of these rules.

6.6.3507 Consolidated or Combined Audits

(1) An insurer may make written application to the Commissioner for authority to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements, if the insurer is part of a group of insurance companies which utilizes a pooling, or one hundred percent reinsurance, agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(a) Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet.


(c) Noninsurance operations may be shown on the worksheet on a combined or individual basis.


(e) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

6.6.3508 Scope of Examination and Report of Independent Certified Public Accountant

(1) Financial statements furnished pursuant to Rule IV hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted



in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the NAIC, as the independent certified public accountant deems necessary.

6.6.3509 Notification of Adverse Financial Condition

(1) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within 5 business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner, as of the balance sheet date currently under examination, or that the insurer does not meet the minimum capital and surplus requirement of 33-2-109, 33-2-110, 33-4-401, 33-5-401, 33-30-201, and 33-31-216(9), MCA, as of that date. An insurer who has received a report pursuant to this rule shall forward a copy of the report to the Commissioner within 5 business days of receipt of such report, and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required 5-business-day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next 5 business days.

(2) If the accountant, subsequent to the date of the audited financial report filed pursuant to this rule, becomes aware of facts which might have affected his report, it has the obligation to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.

6.6.3510 Report on Significant Deficiencies in Internal Controls

(1) In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant, describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit, in accordance with SAS No. 60, “Communication of Internal Control Structure Matters Noted in an Audit” (AU Section 325 of the professional standards of the AICPA, which requires an accountant to communicate significant deficiencies (called “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report must be filed annually by the insurer with the department within 10 days after the filing of the annual audited financial statements. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

6.6.3511 Accountant’s Letter of Qualifications

(1) The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

(a) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the code of professional ethics and pronouncements of the AICPA and the rules of professional conduct of the Montana board of public accountants or its applicable counterpart in a sister state.

(b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement, and whether each is an independent certified public accountant. Nothing within these rules shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.



(c) That the accountant understands the annual audited financial report and his or her opinion thereon will be filed in compliance with these rules and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(d) That the accountant consents to the requirements of Rule XII and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Rule XII.

(e) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA.

(f) A representation that the accountant is in compliance with the requirements of Rule X of these rules.

6.6.3512 Definition, Availability and Maintenance of CPA Workpapers

(1) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support his or her opinion thereof.

(2) Every insurer required to file an audited financial report pursuant to these rules shall require the accountant to make available for review by department examiners, all workpapers prepared in the conduct of his or her examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the department, or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the department has filed a report on examination covering the period of the audit, but no longer than 7 years from the date of the audit report.

(3) In the conduct of the aforementioned periodic review by the department examiners, photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the department.

6.6.3513 Exemptions and Effective Dates

(1) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with these rules if the Commissioner finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within 10 days from a denial of an insurer’s written request for an exemption from this rule, such insurer may make a written request for a hearing on its application for an exemption. Such hearing shall be held in accordance with 33-1-701, MCA.

(2) Domestic insurers retaining certified public accountants on the effective date of this rule who qualify as independent shall comply with these rules for the year ending December 31, 1993, and each year thereafter unless the Commissioner permits otherwise.



(3) Domestic insurers not retaining certified public accountants on the effective date of these rules who qualify as independent may meet the following schedule for compliance, unless the Commissioner permits otherwise.


(i) A report of an independent certified public accountant;

(ii) Audited balance sheets; and


(b) For the year ending December 31, 1994, and each year thereafter, such insurers shall file with the Commissioner all reports required by these rules.

(4) Foreign insurers shall comply with these rules for the year ending December 31, 1993, and each year thereafter, unless the Commissioner permits otherwise.

6.6.3514 Canadian and British Companies

(1) In the case of Canadian and British insurers, the annual audited financial report must be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority, duly audited by an independent chartered accountant.

(2) For such insurers, the letter required in Rule IX must state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Rule VII and must affirm that the opinion expressed is in conformity with such requirements.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEBRASKA

NEBRASKA REGULATIONS

TITLE 210, Chapter 56 — Annual Audited Financial Reports

210 NAC Ch. 56 § 001 Authority

This Rule is promulgated by the Director of Insurance pursuant to Neb.Rev.Stat. § 44-101.01, § 44-322, § 44-1097, § 44-1207, and § 44-32,162.

210 NAC Ch. 56 § 002 Purpose

(002.01) The purpose of this Rule is to improve the Nebraska Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(002.02) This Rule shall apply to all insurers as defined in Section 003.05 except that the following insurers shall be exempt from this Rule for such year unless the Director makes a specific finding that compliance is necessary for the Director to carry out statutory responsibilities:

(a) Assessment associations subject to Neb.Rev.Stat. § 44-801 et seq., and;

(b) Foreign or alien insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be exempt.

(002.03) Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Director to be substantially similar to the requirements herein, are exempt from this Rule if:

(a) A copy of the Audited Financial Report on Signature Deficiencies in Internal Controls, and the Accountants’ Letter of Qualifications which are filed with such other state are filed with the Director in accordance with the filing dates specified in Sections 004 and 010 and 012, respectively. Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance.

(b) A copy of any notification of adverse financial condition report filed with such other state is filed with the Director as required by Section 010.

(002.04) This Rule shall not prohibit, preclude or in any way limit the Director of Insurance from ordering, conducting or performing examinations of insurers under the Statutes and the Rules and Regulations of the Nebraska Department of Insurance and the practices and procedures of the Nebraska Department of Insurance.

210 NAC Ch. 56 § 003 Definitions

(003.01) “Audited Financial Report” means and includes those items specified in Section 005 of this Rule.



(003.02) “Accountant” and “Independent Certified Public Accountant” mean an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant. For purposes of this Rule, “independent” means not affiliated with an insurer.

(003.03) “Department” means the Nebraska Department of Insurance.

(003.04) “Director” means the Director of Insurance for the State of Nebraska.

(003.05) “Insurer” means any stock insurance company, mutual insurance company, assessment company, reciprocal insurance company, fraternal benefit society or health maintenance organization holding a certificate of authority or license issued by the Department. Application of this Rule is further qualified in Subsection 002.02 with regard to assessment companies.

(003.06) “NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual,” mean the current editions of the Annual Statement Instructions and Accounting Practices and Procedures Manuals adopted by the National Association of Insurance Commissioners in effect on the effective date of this chapter. The NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual are available for public inspection at the offices of the Nebraska Department of Insurance, located at 941 “O” Street, Suite 400, Lincoln, Nebraska 68508.

(003.07) “Statutory accounting practices” has the meaning defined in the current editions of the Annual Statement Instructions and Accounting Practices and Procedures Manual published by the National Association of Insurance Commissioners, or as otherwise prescribed by the insurance department of the insurer’s state of domicile.

210 NAC Ch. 56 § 004 Filing and Extensions for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Director on or before June 1 for the year ended December 31 immediately preceding. The Director may require an insurer to file an audited financial report earlier than June 1 with ninety days advance notice to the insurer. Extensions of the June 1 filing date may be granted by the Director for thirty day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Director of good cause for an extension. The request for extension must be submitted in writing not less than ten days prior to the due date in sufficient detail to permit the Director to make an informed decision with respect to the requested extension.

210 NAC Ch. 56 § 005 Contents of Annual Audited Financial Report

The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile. The annual audited financial report shall include the following:

(005.01) Report of independent certified public accountant.

(005.02) Balance sheet reporting admitted assets, liabilities, capital and surplus.

(005.03) Statement of operations.



(005.04) Cash flows.

(005.05) Statement of changes in capital and surplus.

(005.06) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to Neb.Rev.Stat. §44-322 with a written description of the nature of these differences.

(005.07) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Director, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

210 NAC Ch. 56 § 006 Designation of Independent Certified Public Accountant

(006.01) Each insurer required by this Rule to file an annual audited financial report must within sixty days after becoming subject to such requirement, register with the Director in writing the name and address of the independent certified public accountant or accounting firm, generally referred to in this Rule as the “accountant,” retained to conduct the annual audit set forth in this Rule. Insurers not retaining an independent certified public accountant on the effective date of this Rule shall register the name and address of their retained certified public accountant not less than six months before the date when the first audited financial report is to be filed.

(006.02) The insurer shall obtain a letter from such accountant, and file a copy with the Director stating that the accountant is aware of the provisions of the insurance statutes and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department, specifying such exceptions as he may believe appropriate.

(006.03) If an accountant who was the accountant for the immediately preceding filed audited financial Report is dismissed or resigns the insurer shall notify the Department of this event within five business days of this event. The insurer shall also furnish the Director with a separate letter within ten business days of the above notification stating whether in the twenty-four months preceding such engagement event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the



reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Director together with its own.

210 NAC Ch. 56 § 007 Qualifications of Independent Certified Public Accountant

(007.01) The Director shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(007.02) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Nebraska Board of Public Accountancy, or similar code.

(007.03) No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Director for relief from the above rotation requirement on the basis of unusual circumstances. The Director may consider the following factors in determining if the relief should be granted:




The requirements of this paragraph shall become effective two years after the enactment of this rule.

(007.04) The Director shall not recognize as a qualified independent certified public accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:

(a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961- 1968, or any dishonest conduct or practices under federal or state law;


(c) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this Rule.

(007.05) The Director of Insurance, may hold a hearing in accordance with the provisions of the Nebraska Administrative Procedure Act, Neb.Rev.Stat. § 84-901 et seq. and Title 210, Nebraska Administrative Code, Chapter 26, to determine whether a certified public accountant is qualified and independent and, considering the evidence presented, may rule that the accountant qualified and is not independent for purposes of expressing his opinion of



the financial statements in the Annual Audited Financial Report made pursuant to this Rule and require the insurer to replace the accountant with another whose relationship with the insurer is independent within the meaning of this Rule.

210 NAC Ch. 56 § 008 Consolidated or Combined Audits

An insurer may make written application to the Director for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

(008.01) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

(008.02) Amounts for each insurer subject to this section shall be stated separately.

(008.03) Noninsurance operations may be shown on the worksheet on a combined or individual basis.

(008.04) Explanations of consolidating and eliminating entries shall be included.

(008.05) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

210 NAC Ch. 56 § 009 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 005 hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards and consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

210 NAC Ch. 56 § 010 Notification of Adverse Financial Condition

(010.01) The insurer required to furnish the Annual Audited Financial Report shall require the independent certified public accountant to report in writing by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Director as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Nebraska insurance statutes as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Director within five business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Director. If the independent certified public accountant fails to receive such evidence within the required five business day period, the independent certified public accountant shall furnish to the Director a copy of its report within the next five business days.

(010.02) No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.



(010.03) If the accountant, subsequent to the date of this audited financial report filed pursuant to this Rule, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants; as amended.

210 NAC Ch. 56 § 011 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Director with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

210 NAC Ch. 56 § 012 Accountant’s Letter of Qualifications


(012.01) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Accountants and the Rules of Professional Conduct of the Nebraska Board of Public Accountancy, or similar code.

(012.02) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this Rule shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(012.03) That the accountant understands the annual financial report and his opinion thereon will be filed in compliance with this Rule and that the Director will be relying on this information in the monitoring and regulation of the financial position of insurers.

(012.04) That the accountant consents to the requirements of Section 013 of this Rule and that the accountant consents and agrees to make available for review by the Director, his designee or his appointed agent, the workpapers, as defined in Section 013.

(012.05) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(012.06) A representation that the account is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.



(012.07) A representation that the accountant is in compliance with the requirements of Section 007 of this Rule.

210 NAC Ch. 56 § 013 Definition, Availability and Maintenance of CPA Workpapers

(013.01) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

(013.02) Every insurer required to file an audited financial report to this Rule, shall require the accountant, to make available for review by Department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Department, or at any other reasonable place designated by the Director. The insurer shall require that the accountant retain the audit workpapers and communications until the Department has filed a report of Examination covering the period of the audit but no longer than seven years from the date of the audit report.

(013.03) In the conduct of the aforementioned review by the Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department. Such reviews by the Department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Department.

210 NAC Ch. 56 § 014 Exemptions

Upon written application of any insurer, the Director may grant an exemption from compliance with this Rule if the Director finds, upon review of the application, that compliance with this Rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from this Rule, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Nebraska Administrative Procedure Act, Neb.Rev.Stat. § 84-901 et seq. and Title 210, Nebraska Administrative Code, Chapter 26.

210 NAC Ch. 56 § 015 Effective Dates

(015.01) Domestic insurers retaining a certified public accountant on the effective date of this Rule who qualify as independent shall comply with this Rule for the year ending December 31, 1991 and each year thereafter unless the Director permits otherwise.

(015.02) Domestic insurers not retaining a certified public accountant on the effective date of this Rule who qualify as independent may meet the following schedule for compliance unless the Director permits otherwise.

(a) As of December 31, 1991, file with the Director:



(1) Report of independent certified public accountant.

(2) Audited balance sheet.


(b) For the year ending December 31, 1992, and each year thereafter, such insurers shall file with the Director all reports required by this Rule.

(015.03) Foreign insurers shall comply with this Rule for the year ending December 31, 1991, and each year thereafter, unless the Director permits otherwise.

210 NAC Ch. 56 § 016 Canadian and British Companies

(016.01) In the case of Canadian and British insurers, the Annual Audited Financial Report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

(016.02) For such insurers, the letter required in Section 006 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Director pursuant to Section 004 and shall affirm that the opinion expressed is in conformity with such requirements.

210 NAC Ch. 56 § 017 Severability Provision

If any section or portion of a section of this Rule or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the rule or the applicability of such provision to other persons or circumstances shall not be affected thereby.



NEVADA STATUTES

Title 57 – Insurance Chapter 680A – Authorization of Insurers and General Requirements

680A.265 Financial Statements

1. Except as otherwise provided in subsection 5, every:

(a) Domestic insurer;

(b) Fraternal benefit society authorized to do business in this state pursuant to chapter 695A of NRS; and

(c) Corporation subject to the provisions of chapter 695B of NRS, shall file with the commissioner, on or before June 1 of each year, a financial statement as of December 31 of the preceding calendar year that is certified by a certified public accountant who is not an employee of the insurer. The commissioner may request a financial statement from a foreign or alien insurer.

2. If a certified public accountant finds any violation of the laws of this state during any audit he conducts pursuant to subsection 1, he shall, if the commissioner has adopted regulations pursuant to subsection 6 pertaining to the reporting of a violation found during an audit, report the violation in accordance with those regulations.

3. An insurer who does not file a report pursuant to subsection 1 on or before June 1 of each year is subject to the penalty imposed pursuant to NRS 680A.280.

4. A statement filed with the commissioner must not be a consolidated report with any other subsidiary, affiliate or parent company.

5. The provisions of this section do not apply to a domestic insurer who:

(a) Is not licensed or authorized to do business in any state other than Nevada; or

(b) Is exempted from the requirements of this section by order of the commissioner for good cause shown.

6. The commissioner may adopt reasonable regulations relating to annual audited financial reports to administer the provisions of this section.



NEVADA INSURANCE REGULATIONS

Department of Business and Industry Division of Insurance Codified Regulation

Chapter 680A — Authorization of Insurers and General Requirements General Provisions

NAC 680A.1.75

1. In addition to the exemptions provided in NAC 680A.174, the commissioner may, upon written application of an insurer, grant an exemption from compliance with the requirements set forth in NAC 680A.265, if the commissioner finds, upon review of the application, that compliance with those requirements would constitute a financial or organizational hardship on the insurer. The commissioner may grant such an exemption at any time and from time to time for one or more specified periods.

2. If the commissioner denied the written application of an insurer for an exemption pursuant to subsection 1, the insurer may, within 10 days after the denial, request in writing a hearing on the application. The hearing will be held in accordance with the provisions of NAC 679B.161 to 679B.480, inclusive.

NAC 680A.004 Annual Audited Financial Report

“Annual audited financial report” means:

1. The report which must be filed with the commissioner in accordance with NRS 680A.265.

2. For an insurer domiciled in Canada or Great Britain, the annual statement of total business on the form filed by the insurer with its domiciliary supervision authority, duly audited by a chartered accountant

NAC 680A.006 Independent Certified Public Accountant

“Accountant” or independent certified public accountant” means:

1. An independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant or accounting firm is licensed to practice.

2. For an insurer domiciled in Canada or Great Britain, a chartered accountant.

NAC 680A.008 Commissioner

“Commissioner” means the commissioner of insurance.

NAC 680A.010 Division

As used in this chapter, unless the context otherwise requires, “division” means the division of insurance of the department of business and industry.

NAC 680A.012 Insurer

“Insurer” means an insurer licensed to transact the business of insurance in this state.



NAC 680A.018 Workpaper

“Workpaper” means the record kept by an independent certified public accountant of the procedure followed, the test performed, the information obtained and the conclusion reached pertinent to his examination of the financial statements of an insurer. A workpaper includes, but is not limited to, an audit planning document, a work program, an analysis, a memorandum, a letter of confirmation and representation, an abstract of company documents and a schedule or commentary which are prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

NAC 680A.172 Exemption from Filing for Certain Qualified Insurers; Exceptions

For the purposes of NRS 680A.265, the commissioner will find that good cause exists for the exemption of an insurer from the requirements of NRS 680A.265 for the year if, at the end of the most previous calendar year, the insurer has direct premiums written in this state in an amount which is less than $1,000,000 and has less than 1,000 policyholders, certified holders, enrollees, members or subscriber of directly written policies in the United States unless:

1. The commissioner makes a specific finding that compliance by that insurer is necessary for the commissioner to carry out his statutory responsibilities; or

2. The insurer has assumed premiums pursuant to contracts or treaties of reinsurance in an amount of $1,000,000 or more.

NAC 680A.174 Exemption from Filing for Certain Foreign and Alien Insurers

1. A foreign or alien insurer which files an audited financial report in another state, in accordance with that state’s requirements for filing audited financial reports, is exempt from filing its annual audited financial report in accordance with Sections 2 to 24, inclusive, if:

(a) The commissioner determines that the requirements of the other state for filing such reports are substantially similar to the requirements set forth in NAC 680A.172 to 680A.204, inclusive;

(b) The foreign or alien insurer files with the commissioner, in accordance with the appropriate filing dates specified in NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive; a copy of its audited financial report, its report, if any, on significant deficiencies in internal controls, and the certified public accountant’s letter of qualifications which have been filed with the insurance regulatory authority of the other state; and

(c) The foreign or alien insurer files with the commissioner a copy of each notification of a report of adverse financial condition filed with the insurance regulatory authority of the other state within the time specified in NAC 680A.198.

2. For the purposes of this section, an insurer which is domiciled in Canada may submit its accountant’s reports which the insurer filed with the Canadian Dominion Department of Insurance.

NAC 680A.176 Authority of Commissioner to Examine Insurer Not Limited

The provisions of NAC 680.172 to 680A.204, inclusive, do not prohibit, preclude or in any way limit the commissioner from ordering, conducting or performing an examination of an insurer pursuant to chapter 679B of NRS.



NAC 680A.178 Filing Date for Report; Shortening of Allowed Time; Extensions of Time

1. The commissioner may require an insurer to file its annual audited financial report earlier than June 1 upon notice to the insurer by the commissioner made at least 90 days before the earlier filing date.

2. The commissioner may grant one or more 30-day extensions of the filing date as determined in accordance with NRS 680A.265 and subsection 1 upon a showing by the insurer and its independent certified public accountant of good cause for the extension. A request for a 30-day extension must be submitted in writing not less than 10 days before the date on which the annual audited financial report is to be filed and must contain sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

NAC 680A.180 Contents of Report; Form

1. The annual audited financial report must include a report of the financial position of the insurer as of the end of the most recent calendar year and the results of the insurer’s operations, cash flows and changes in capital and surplus for that year.

2. The annual audited financial report of an insurer must include:

(a) A report of the independent certified public accountant;

(b) A balance sheet which reports the admitted assets, liabilities, capital and surplus of the insurer;

(c) A statement of operation;

(d) A statement of cash flows;

(e) A statement of changes in capital and surplus;

(f) Any notes to financial statements required by the appropriate instructions for annual statements of the National Association of Insurance Commissioners, and any other notes required by generally accepted accounting principles;

(g) A reconciliation of the differences, if any, between the annual audited financial report and the annual statement filed with the commissioner pursuant to NRS 680A.270, with a written description of the nature of those differences; and

(h) A summary of the ownership and relationships of the insurer and each of its affiliated companies, if any.

3. A financial statement included in an annual audited financial report must be prepared in a form which uses language and groupings that are substantially similar to the relevant sections of the annual statement of the insurer filed with the commissioner pursuant to NRS 680A.270. The financial statement must include comparative data as of December 31 of the two most previous calendar years, except that, in the first year in which an insurer is required to file an annual audited financial report, the insurer may include only the data from the most previous calendar year.



NAC 680A.182 Registration of Name of Independent Certified Public Accountant by Insurer; Filing of Acknowledgement from Independent Certified Public Accountant Regarding Statutory Accounting Practice Requirements

1. An insurer required by NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive, to file an annual audited financial report shall, within 60 days after becoming subject to the requirement, register with the commissioner in writing the name and address of it’s independent certified public accountant who will audit the report.

2. The insurer shall obtain a letter from the independent certified public accountant and file a copy of the letter with the commissioner which:

(a) States that the accountant is aware of the provisions of Title 57 of NRS, and the regulations adopted pursuant thereto, that relate to accounting and financial matters, and affirms that the accountant will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by Title 57 of NRS, and the regulations adopted pursuant thereto, specifying such exceptions as he deems appropriate; and

(b) For an insurer domiciled in Canada or Great Britain, states that the accountant is aware of the requirements relating to the annual audited financial report filed with the commissioner pursuant to NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive, and affirms that the opinion expressed is in conformity with those requirements.

NAC 680A.184 Dismissal or Resignation of Independent Certified Public Accountant: Notification of Commissioner; Filing Requirements for Statements from Insurer and Independent Certified Public Accountant Regarding Disagreements; Types of Disagreements that Qualify for Inclusion

1. If the independent certified public accountant who was the accountant for the most recent filing of the annual audited financial report of an insurer is dismissed or resigns, the insurer shall:

(a) Not later than 5 business days after the dismissal or resignation, notify the commissioner of the dismissal or resignation; and

(b) Not later than 10 business days after notifying the commissioner of the dismissal or resignation of the accountant, file with the commissioner a separate letter which sets forth:

(1) Each disagreement which occurred during the 24 months immediately preceding the dismissal or resignation between the accountant and the insurer on any matter of accounting principles or practices, disclosure on a financial statement or the scope or procedure of the audit; and

(2) Which disagreements, if not resolved to the satisfaction of the accountant, caused him to make a reference to the subject matter of the disagreement in his opinion filed with the annual audited financial report of the insurer.

2. The disagreements required to be reported pursuant to this section include both those resolved to the former accountant’s satisfaction and those which have not been resolved to the former accountant’s satisfaction. The insurer shall request in writing that the former accountant furnish a letter addressed to the insurer stating:



(a) Whether the accountant agrees with the statements contained in the insurer’s letter filed pursuant to subsection 1 and, if not, stating the reasons he does not agree; and

(b) If the insurer is domiciled in Canada or Great Britain, that the accountant is aware of the requirements relating to the annual audited financial report filed with the commissioner pursuant to NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive, and affirming that the opinion of the accountant is expressed in conformity with those requirements.

3. Upon receipt of the accountant’s response letter, the insurer shall file with the commissioner a copy of the response letter from the former accountant and any written response of the insurer to the accountant’s response letter.

4. For the purposes of this section, a disagreement between the insurer and its accountant is a disagreement which occurs between the insurer and the accountant at the decision-making level and includes, without limitation, a disagreement between the personnel of the insurer responsible for preparation of the financial statements of the insurer and the personnel of the independent certified public accountant responsible for rendering its opinion on those statements.

NAC 680A.186 Requirements for Recognition as Qualified Independent Certified Public Accountant by Commissioner

1. Except as otherwise provided in subsection 2 and NAC 680A.188 and 680A.190, the commissioner will recognize an independent certified public accountant as a qualified independent certified public accountant if the independent certified public accountant conforms to the standards contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct and the regulations of the Nevada state board of accountancy, or other similar code.

2. The commissioner will not recognize as a qualified independent certified public accountant an independent certified public accountant who:

(a) Is not in good standing with the American Institute of Certified Public Accountants and in all states in which the independent certified public accountant is licensed or certified to practice;

(b) For an insurer domiciled in Canada or Great Britain, is not a chartered accountant or accounting firm; or

(c) Has either directly or indirectly entered into an agreement of indemnity or release from liability with respect to an audit of the insurer if the intent or effect of the agreement or release is to shift or limit in any manner the potential liability of the accountant for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from a knowing or other misrepresentation made by the insurer or its representatives.

NAC 680A.188 Length of Service of Independent Certified Public Accountant to Same Insurer; Limitations; Exceptions

1. Except as otherwise provided in this section, an independent certified public accountant who is responsible for rendering an annual audited financial report for an insurer may act in that capacity for a period of not more than 7 consecutive years, which begins to run from the date on which the insurer registers the accountant with the commissioner pursuant to NAC 680A.182. At the end of the 7-year period, the independent certified public accountant is disqualified from acting in that or a similar



capacity for the same insurer or any insurance subsidiary or affiliate of the insurer for a period of at least 2 years.

2. An insurer may apply to the commissioner for permission for an independent certified public accountant to continue in his capacity in the rendering of the annual audited financial report for the insurer and its subsidiary or affiliate in less than 2 years, upon a showing of unusual circumstances. The commissioner will consider the following factors, without limitation, in determining if the relief should be granted:

(a) If the independent certified public accountant is an accounting firm, the number of partners within the independent certified public accountant and the expertise of those partners;

(b) The number of insurers who are clients of the accountant;

(c) The volume of premiums of the insurer; or

(d) The number of jurisdictions in which the insurer transacts business.

NAC 680A.190 Conditions for Refusal by Commissioner to Recognize Independent Certified Public Accountant as Qualified

The commissioner will not recognize as a qualified independent certified public accountant, or accept any annual audited financial report prepared in whole or in part by, any natural person who:

1. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§1961 to 1968, inclusive, or any dishonest conduct or practices under federal or state law;

2. Has been found to have violated any provision of Title 57 of NRS, or any regulation adopted pursuant thereto, with respect to any previous annual audited financial report submitted pursuant to NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive; or

3. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous annual audited financial reports filed pursuant to NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive.

NAC 680A.192 Hearing to Consider Qualifications of Independent Certified Public Accountant

The commissioner will, if he deems it necessary, hold a hearing to determine whether an independent certified public accountant is qualified for the purposes of NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive. If, based on the evidence presented, the commissioner determines that the accountant is not qualified, the commissioner will:

1. Rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual audited financial report to be made pursuant to NRS 680A.265 and NAC 680.172 to 680A.204, inclusive, and require the insurer to replace the accountant with an independent certified public accountant who is so qualified; or

2. Take any other action determined to be necessary by the commissioner.



NAC 680A.194 Consolidated Report for Insurance Pool; Worksheet Required; Contents

1. An insurer may make a written application to the commissioner for approval to file a consolidated or combined annual audited financial report in lieu of separate annual audited financial reports if the insurer:

(a) Is part of a group of insurers that uses a pooling agreement or an agreement for 100 percent reinsurance which affects the solvency and integrity of the reserves of the insurer; and

(b) Cedes all of its direct and assumed business to the pool.

2. If the commissioner approves the consolidated or combined filing, the insurer shall file with its report a columnar worksheet, as follows:

(a) Amounts shown on the consolidated or combined annual audited financial report must be shown on the worksheet;

(b) Amounts for each insurer subject to the consolidated or combined annual audited financial report filed pursuant to this section must be stated separately;

(c) Amounts for the operations of the insurer which are not related to insurance must be shown on the worksheet on a combined or individual basis;

(d) Explanations of entries which are consolidated or eliminated must be included; and

(e) A reconciliation must be included of any differences between the amount shown on the column for the individual insurer and the comparable amount shown on the annual statement of the insurer.

NAC 680A.196 Standards and Procedures for Independent Certified Public Accountants Filing Reports

An examination of the insurer’s financial statements by an independent certified public accountant for the purposes of NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive, must be conducted in accordance with:

1. Generally accepted auditing standards; and

2. Such other procedures set forth in the Financial Condition Examiner’s Handbook, which composes Volume One of the Examiners Handbook published by the National Association of Insurance Commissioners, as adopted by reference in NAC 679B.033, as the independent certified public accountant deems necessary.

NAC 680A.198 Separate Report Required for Misstatement by Insurer of Financial Condition or Failure to Meet Minimum Requirements for Capital and Surplus: General Procedure; Form; Time; Liability; Procedure When Additional Facts are Discovered

1. An independent certified public accountant of an insurer required to furnish an annual audited financial report shall report to the board of directors or audit committee of the insurer each determination by the accountant that the insurer:

(a) Has materially misstated its financial condition as reported to the commissioner as of the date of the balance sheet currently under examination; or



(b) Does not, as of that date, meet the minimum requirements for capital and surplus as set forth in chapter 680A of NRS.

The report must be in writing and provided to the insurer not later than 5 business days after the accountant makes such a determination.

2. An insurer who receives a report from its independent certified public accountant pursuant to this section shall, not later than 5 business days after the date on which it receives the report from the accountant:

(a) Forward a copy of the report to the commissioner; and

(b) Provide the independent certified public accountant who made the report with evidence that the insurer has forwarded a copy of the report to the commissioner. If the independent certified public accountant does not, within the 5 business day period, receive evidence from the insurer that the insurer has forwarded a copy of the report to the commissioner in accordance with this section, the independent certified public accountant shall file with the commissioner a copy of its report within the next 5 business days.

3. An independent certified public accountant is not liable in any manner to any person for any statement made in connection with this section if the statement is made in good faith in compliance with this section.

4. If the independent certified public accountant, after the annual audited financial report reviewed by the accountant has been filed pursuant to NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive, becomes aware of any facts which affect his report, the accountant shall take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants, which is hereby adopted by reference. A copy of the Professional Standards may be obtained from the American Institute of Certified Public Accountants:

(a) By mail at The American Institute of Certified Public Accountants, AICPA/CPA2Biz, Customer Service Center, P.O. Box 2209, Jersey City, New Jersey 07303-2209;

(b) By telephone at 1-888-777-7077; or

(c) On the Internet, at a cost of $145.

NAC 680A.200 Deficiency in Structure for Internal Control; Remedial Action Taken by Insurer

If, following the audit of the financial statements of an insurer, an independent certified public accountant notes any significant deficiency in the insurer’s structure for internal control, the insurer shall, not later than 60 days after the date on which the annual audited financial report is filed with the commissioner, file a written report which provides a description of the deficiency and of the remedial actions taken or proposed to correct the significant deficiency, if those actions are not otherwise described in the accountant’s report filed with the annual audited financial report.

NAC 680A.202 Letter from Independent Certified Public Accountant Must be Included in Filing of Report; Contents

An independent certified public accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter which states:

1. That the accountant is independent of the insurer and that he conforms to the standards of his profession as contained in the Code of Professional Ethics and pronouncements of the American



Institute of Certified Public Accountants, and the Rules of Professional Conduct and the regulations of the Nevada state board of accountancy, or other similar code.

2. The background and experience of the accountant in general and the experience of the staff of the accountant in auditing insurers, and whether each member of that staff which will audit the insurer is an independent certified public accountant. The provisions of NAC 680A.172 to 680A.204, inclusive, will not be construed as prohibiting the accountant from utilizing such staff as he deems necessary if that use of staff is consistent with the standards prescribed by generally accepted auditing standards.

3. That the accountant understands that the annual audited financial report and his opinion thereon will be filed in compliance with NRS 680A.265 and NAC 680A.172 to 680A.204, inclusive, and that the commissioner will be relying on this information to monitor and regulate the financial position of the insurer.

4. That the accountant consents to make his workpapers available for review by the commissioner or his designated agent in accordance with NAC 680A.204.

5. That the accountant is properly licensed, certified or chartered by the appropriate licensing authority in the state or country in which the accountant is licensed, certified or chartered, and that the accountant is a member in good standing in the American Institute of Certified Public Accountants.

6. That the accountant is in compliance with the requirements for a qualified independent certified public accountant as set forth in NAC 680A.186, 680A.188 and 680A.190.

NAC 680A.204 Workpapers and Communications Related to Audit Must be Available for Review; Retention; Confidentiality

1. The independent certified public accountant of an insurer required to file an annual audited financial report pursuant to NRS 680A.265 shall make available for review by the commissioner or his designated agent all of the workpapers prepared by the accountant in the conduct of his examination and any communications related to the audit between the accountant and the insurer at the offices of the insurer at the insurance division of the department of business and industry or at any other reasonable place designated by the commissioner. The independent certified public accountant shall retain the workpapers and communications pertaining to its audit of the financial statements of an insurer for 7 years after the date of the report by the accountant on the annual audited financial report or until the insurance division has completed its examination of the annual audited financial report, whichever occurs first.

2. In the conduct of their examination of an annual audited financial report, the examiners of the division may make a photocopy of any pertinent workpapers relating to the audit which will be retained by the division. The examination by the examiners is considered to be an investigation, and all workpapers and communications obtained during the course of such an investigation will be afforded the same confidentiality as other working papers relating to the examination which are generated by the division.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NEW HAMPSHIRE

NEW HAMPSHIRE STATUTES

New Hampshire Statutes Title 37, Chapter 400-A:36

Chapter 400-A:36 (Annual financial statement) of the New Hampshire Statutes states in part:

I. “Every insurance company doing business in this state shall, on or before March 1 each year, make and transmit to the Commissioner a statement under oath of its president and secretary, in accordance with the National Association of Insurance Commissioners Annual Statement Blank following the National Association of Insurance Commissioners Annual Statement Instructions and those accounting procedures and practices prescribed by the National Association of Insurance Commissioners Accounting Practices and Procedure Manual.…

III. In addition to the above, the commissioner may require from any person or company subject to this title:

(a) Statements, reports, including reports audited by independent public accountants, answers to questionnaires and other information, and evidence thereof, in whatever reasonable form he designates, and at such reasonable intervals as he may choose, or from time to time….”



NEW JERSEY REGULATIONS

Title 11, SUBTITLE B Chapter 2—Insurance Group

Subchapter 26.—Annual Audited Financial Reports

NJAC 11:2-26.1 Purpose

(a) The purpose of this subchapter is to improve the Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(b) This subchapter shall not be construed to prohibit, preclude or in any way limit the Commissioner from ordering, conducting or performing examinations of insurers pursuant to law.

NJAC 11:2-26.2 Scope

This subchapter shall apply to all insurers transacting business in the State of New Jersey except as provided in N.J.A.C. 11:2-26.14.

NJAC 11:2-26.3 Definitions

The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

“Alien insurer” means an insurer formed under the laws of any country other than the United States of America, its states, districts, territories, commonwealths or possessions.

“Audited financial report” means and includes those items specified in N.J.A.C. 11:2-26.5.

“Accountant” and “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for alien insurers, it means a chartered or similarly certified accountant.

“Commissioner” means the Commissioner of the Department of Banking and Insurance.

“Department” means the Department of Banking and Insurance.

“Insurer” means any person, association, partnership or corporation licensed, authorized or eligible to transact the business of insurance in this State pursuant to Subtitle 3 of Title 17 or Subtitle 3 of Title 17B of the Revised Statutes of the State of New Jersey including, but not limited to, eligible surplus lines insurers, interinsurance exchanges and all risk retention groups as defined in 15 U.S.C. Section 3901 doing business in New Jersey. Insurer does not include any statutory mechanism for providing insurance coverage in this State, including, but not limited to, municipal joint insurance funds formed pursuant to N.J.S.A. 40A:10-36 et seq.

“Workpapers” means the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination of the financial statements of an insurer. Workpapers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support his or her opinion thereof.



NJAC 11:2-26.4 Filing of Annual Audited Financial Reports; Extensions

(a) All insurers (unless exempted pursuant to N.J.A.C. 11:2-26.14) shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 upon 90 days advance written notice to the insurer.

(b) Extensions of the June 1 filing date may be granted by the Commissioner for 30 day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for an extension must be submitted in writing not less than 10 days prior to the due date of the financial report in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

NJAC 11:2-26.5 Contents of Annual Audited Financial Report

(a) The annual audited financial report shall reflect the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for such calendar year in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department.

(b) The annual audited financial report shall include:

1. A report of an independent certified public accountant;

2. A balance sheet reporting admitted assets, liabilities, capital and surplus;

3. A statement of operations;

4. A statement of cash flows;

5. A statement of changes in capital and surplus; and

6. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual. These notes shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to N.J.S.A. 17:23-1 and 17B:21-1 with a written description of the nature of these differences.

(c) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement filed with the Commissioner.

1. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted).

NJAC 11:2-26.6 Qualifications of Independent Certified Public Accountant

(a) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant unless they are in good standing with the American Institute of Certified Public



Accountants and in all states in which the accountant is licensed to practice, or, for alien insurers, that is not a chartered or similarly certified accountant.

(b) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations, Code of Ethics and Rules of Professional Conduct of the New Jersey Board of Public Accountancy or similar code.

(c) No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:

1. The number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

2. The premium volume of the insurer; or

3. The number of jurisdictions in which the insurer transacts business.

(d) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:

1. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under Federal or state law, or similar conduct under any foreign law;

2. Has been found to have violated the insurance laws of this State with respect to any previous reports submitted under this rule; or

3. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this subchapter.

(e) Whenever it appears that the certified public accountant or accounting firm retained by the insurer to conduct the annual audit is not a qualified independent certified public accountant as provided under these rules, the Department shall notify the insurer that it does not recognize the certified public accountant or accounting firm as qualified, and the Department will not accept any annual audited Financial Report prepared by that accountant or accounting firm.

1. Upon receipt of such notice from the Department, the insurer may, within 20 days, request an administrative review on the issue of the qualifications of the independent certified public accountant or accounting firm retained by the insurer.

NJAC 11:2-26.7 Certification by Independent Certified Public Accountant

(a) Each insurer required by this subchapter to file an annual audited financial report shall within 60 days after becoming subject to such retirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this subchapter. Insurers not retaining an independent certified public



accountant on the effective date of this rule as amended shall register the name and address of their retained certified public accountant not less than six months before the date when the audited financial report is to be filed.

(b) The insurer shall also obtain a letter from the accountant, and file a copy with the Commissioner, stating that the accountant is aware of the provisions of the insurance statutes and administrative rules of this State that relate to accounting and financial matters. The accountant shall also certify that he or she will express his or her opinion on the financial statements in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department and specify such exceptions as he or she may believe appropriate.

(c) In addition to the requirements in (a) and (b) above, if the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within 10 business days of the above notification stating whether in the 24 months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this subsection include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this subsection are those that occur at the decision-making level (that is, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report). The insurer shall also request in writing that such former accountant furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

NJAC 11:2-26.8 Consolidated or Combined Audits

(a) An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report as follows:

1. Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet;

2. Amounts for each insurer subject to this section shall be stated separately;

3. Noninsurance operations may be shown on the worksheet on a combined or individual basis;

4. Explanations of consolidating and eliminating entries shall be included; and

5. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.



NJAC 11:2-26.9 Scope of Examination and Report

Financial statements furnished pursuant to N.J.A.C. 11:2-26.5 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

NJAC 11:2-26.10 Notification of Adverse Financial Condition

(a) An insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing within five business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements as of that date. An insurer who has received a report pursuant to this section shall forward a copy of the report to the Commissioner within five business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five business days. No independent public accountant shall be liable in any manner to any person for any statement made in connection with this subsection if such statement is made in good faith in compliance with this subsection.

(b) If the accountant, subsequent to the date of the audited financial report filed pursuant to this subchapter, becomes aware of facts which might have affected his or her report, the accountant shall take such action as prescribed in Volume I, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants, incorporated herein by reference.

NJAC 11:2-26.11 Report on Significant Deficiencies in Internal Controls

(a) In addition to the annual audited financial report, each insurer shall file with the Commissioner a written report prepared by the accountant describing any significant deficiencies known as “reportable conditions” in the insurer’s internal control structure noted by the accountant during the audit which an accountant is required to report to appropriate parties within an entity pursuant to SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants).

(b) No report should be issued if the accountant does not identify one or more significant deficiencies.

(c) If one or more significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within 60 days after the filing of the annual audited financial report. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

NJAC 11:2-26.12 Accountant’s Letter of Qualifications

(a) The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:



1. That the accountant is independent with respect to the insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the New Jersey Board of Public Accountancy, or similar code;

2. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards;

3. That the accountant understands the annual audited financial report and the accountant’s opinion thereon will be filed in compliance with this subchapter, and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

4. That the accountant consents to the requirements of N.J.A.C. 11:2-26.13 and that the accountant consents and agrees to make available for review by the Commissioner, his or her designee or his or her appointed agent, the workpapers, as defined in N.J.A.C. 11:2-26.3;

5. A representation that the accountant is properly licensed by an appropriate state licensing authority and that he is a member in good standing in the American Institute of Certified Public Accountants; and

6. A representation that the accountant is in compliance with the requirements of N.J.A.C. 11:2-26.6.

NJAC 11:2-26.13 Availability and Maintenance of Workpapers

(a) Every insurer required to file an audited financial report pursuant to this subchapter shall require the accountant to make available for review by the Commissioner, all the workpapers prepared in the conduct of his or her examination and any communications related to the audit between the accountant and the insurer, at the Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Department has filed a Report on Examination covering the period of the audit and determined that the audit workpapers and communications need no longer be retained or for no longer than 10 years from the date the accountant submits the audit report to the insurer, whichever occurs first.

(b) In the conduct of the periodic review by the Commissioner, photocopies of pertinent audit workpapers may be made and retained by the Commissioner. Such reviews by the Commissioner shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Department.

NJAC 11:2-26.14 Exemptions

(a) Insurers having direct premiums written in this State of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this subchapter for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory



responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

(b) Foreign or alien insurers having direct premiums written in this State of less than $250,000 in any year and having less than 500 policyholders in this State at the end of any year are exempt from compliance with this subchapter for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities).

(c) Insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which have been found by the Commissioner to be substantially similar to the requirements herein, are exempt from compliance with this subchapter if:

1. A copy of the audited financial report, the report on any significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in N.J.A.C. 11:2-26.4, 26.11 and 26.12 respectively (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance); and

2. A copy of any notification of adverse financial condition report filed with such other state is filed with the Commissioner within the time specified in N.J.A.C. 11:2-26.10.

(d) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this subchapter if the Commissioner finds, upon review of the application, that compliance would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specific period or periods.

NJAC 11:2-26.15 Alien Insurers

(a) In the case of alien insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered or similarly certified accountant.

(b) For such insurers, the letter required in N.J.A.C. 11:2-26.7 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to N.J.A.C. 11:2-26.4 and shall affirm that the opinion expressed is in conformity with such requirements.

NJAC 11:2-26.16 Confidentiality of Documents

All documents submitted to the Commissioner pursuant to this subchapter are confidential and not public documents as defined in the Public Records Act, N.J.S.A. 47:1A-1 et seq.

NJAC 11:2-26.17 Penalties

Failure to comply with the provisions of this subchapter may result in the imposition of penalties as provided by law.

NJAC 11:2-26.18 Severability

If any section of this subchapter is held to be invalid, the remaining parts of this subchapter are not to be affected.



NEW MEXICO REGULATIONS

Title 13. Insurance Chapter 2. Insurance Company Licensing and Operation

Part 5 — Annual Audited Financial Reports

13 NMAC 2.5.1 Issuing Agency

New Mexico State Corporation Commission, Department of Insurance, Post Office Box 1269, Santa Fe, NM 87504-1269.

13 NMAC 2.5.2 Scope

This rule applies to every insurer except that:

2.1 an insurer having direct premiums written in this state of less than one million dollars ($1,000,000) in any calendar year and fewer than one thousand policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for such year unless:

2.1.1 the insurer has assumed premiums pursuant to contracts and/or treaties of reinsurance of one million dollars ($1,000,000) or more; or

2.1.2 the superintendent makes a specific finding that compliance is necessary for the superintendent to carry out statutory responsibilities;

2.2 Foreign or alien insurers filing audited financial reports in another state are exempt from this rule if:

2.2.1 the superintendent finds the other state’s requirement of audited financial reports to be substantially similar to the requirements of this rule;

2.2.2 a copy of the audited financial report, the report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with such other state are filed with the superintendent in accordance with the filing dates specified in this rule. Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance; and

2.2.3 a copy of any report of adverse financial condition filed with such other state is filed with the superintendent within the time specified in this rule.

13 NMAC 2.5.3 Statutory Authority

NMSA 1978 Section 59A-2-9.

13 NMAC 2.5.4 Duration

Permanent

13 NMAC 2.5.5 Effective Date

January 1, 1994, unless a later date is cited at the end of the section or paragraph. Repromulgated in NMAC format effective July 1, 1997.



13 NMAC 2.5.6 Objective

The purpose of this rule is to improve the New Mexico Insurance Department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

13 NMAC 2.5.7 Definitions

7.1 “Audited financial report” means and includes all items specified in 13 NMAC 2.5.10, 2.5.11, and 2.5.12.

7.2 “Insurer” means an authorized insurer, an eligible surplus lines insurer, and a registered risk retention group, unless the context clearly indicates otherwise.

13 NMAC 2.5.8 Conflict with Other Provisions

This rule shall not prohibit, preclude or in any way limit the superintendent from ordering, conducting or performing examinations of insurers under the Insurance Code or other Insurance Department rules.

13 NMAC 2.5.9 Filing Dates and Extensions

9.1 All insurers shall have an annual audit by an independent certified public accountant and shall file an annual audited financial report with the superintendent on or before June 1 for the year ended December 31 immediately preceding. The superintendent may require an insurer to file an audited financial report earlier than June 1 with ninety days advance notice to the insurer.

9.2 The superintendent may grant extensions of the June 1 filing date for thirty-day periods for good cause shown. The request for extension must be submitted in writing not less than ten days prior to the filing date. The insurer and its independent certified public accountant must show the reasons for requesting such extension in sufficient detail to permit the superintendent to make an informed decision with respect to the requested extension.

13 NMAC 2.5.10 Reporting Period

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended, in conformity with statutory accounting practices prescribed or otherwise permitted by the department of insurance of the insurer’s state of domicile.

13 NMAC 2.5.11 Report Form

The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the superintendent. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. The comparative data may be omitted in the first year in which an insurer is required to file an audited financial report.

13 NMAC 2.5.12 Contents of Report


12.1. report of independent certified public accountant;



12.2 balance sheet reporting admitted assets, liabilities, capital and surplus;

12.3 statement of operations;

12.4 statement of cash flows;

12.5 statement of changes in capital and surplus;

12.6 notes to financial statements, including:

12.6.1 those required by the appropriate NAIC Annual Statement Instructions;

12.6.2 a reconciliation of differences, if any, between the annual audited financial report filed pursuant to this rule and the annual statement filed pursuant to NMSA 1978 Section 59A-5-29, with a written description of the nature of these differences;

12.6.3 a summary of ownership and relationships of the insurer and all affiliated companies; and

12.6.4 any other notes required by generally accepted accounting principles; and

12.7 accountant’s letter of qualifications, as described in this rule.

13 NMAC 2.5.13 Registration of Independent Certified Public Accountant

13.1 Each insurer required by this rule to file an annual audited financial report must, within sixty days after becoming subject to such requirement, register with the superintendent in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit required by this rule. Insurers not retaining an independent certified public accountant on the effective date of this rule shall register the name and address of their retained certified public accountant not less than six months before the date when the first audited financial report is to be filed.

13.2 The insurer shall obtain a letter from the accountant, and file a copy with the superintendent, stating that the accountant is aware of the provisions of the insurance code and the rules of the insurance department of the insurer’s state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statement in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying such exceptions as he may believe appropriate.

13 NMAC 2.5.14 Dismissal or Resignation of Accountant

14.1 If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall notify the superintendent in writing of this event within five business days.

14.2 The insurer shall also furnish the superintendent with a separate letter of disagreement within ten business days of the notice of dismissal or resignation, which shall contain the following:

14.2.1 the letter shall state whether, in the twenty-four months preceding such event, there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which would have caused the accountant to make reference in his opinion to the subject matter of the disagreement if the disagreement had not been resolved to the satisfaction of the former accountant; and



14.2.2 the insurer must report in the letter all disagreements that occurred at the decision-making level (i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report), whether resolved to the former accountant’s satisfaction or not resolved to the former accountant’s satisfaction.

14.3 The insurer shall send a copy of the letter of disagreement to the former accountant and request in writing that the former accountant furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter of disagreement and, if not, stating the reasons for his disagreement. The insurer shall furnish a copy of the responsive letter from the former accountant to the superintendent.

13 NMAC 2.5.15 Qualifications of Independent Certified Public Accountant

15.1 The superintendent shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

15.2 The superintendent shall not recognize any natural person as a qualified independent certified public accountant who:

15.2.1 has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any other dishonest conduct or practices under federal or state law;

15.2.2 has been found to have violated the New Mexico Insurance Code with respect to any previous financial reports submitted pursuant to this rule; or

15.2.3 has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this rule.

15.3 Except as otherwise provided in this section, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of the profession as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and the Code of Ethics and Rules of Professional Conduct of the New Mexico State Board of Public Accountancy, or similar code.

15.4 The superintendent may hold a hearing to determine whether an independent certified public accountant is qualified within the meaning of this rule to express an opinion on the financial statements made in the annual audited financial report required by this rule. The superintendent may, after considering the evidence presented, rule that the accountant is not qualified and may require the insurer to replace the accountant with another person or firm whose relationship with the insurer is qualified within the meaning of this rule.

13 NMAC 2.5.16 Rotation of Accountants Required

16.1 After January 1, 1996, no partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any such period of service the person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years.



16.2 An insurer may make application to the superintendent for relief from this rotation requirement on the basis of unusual circumstances. The superintendent may consider the following factors in determining if the relief should be granted:

16.2.1 the number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

16.2.2 the premium volume of the insurer; and

16.2.3 the number of jurisdictions in which the insurer transacts business.

13 NMAC 2.5.17 Consolidated or Combined Audits

An insurer may make written application to the superintendent for approval to file consolidated or combined annual audited financial reports in lieu of separate annual audited financial reports if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidated or combined worksheet shall be filed with the report, as follows:

17.1 amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet;

17.2 amounts for each insurer subject to this section shall be stated separately;

17.3 noninsurance operations may be shown on the worksheet on a combined or individual basis;

17.4 explanations of consolidated and eliminated entries shall be included; and

17.5 a reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

13 NMAC 2.5.18 Scope of Examination and Report of Independent Certified Public Accountant

18.1 The superintendent shall not accept any annual audited financial report prepared in whole or in part by any person or firm that is not recognized as a qualified independent certified public accountant.

18.2 The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards.

18.3 The independent certified public accountant shall use such other procedures illustrated in the National Association of Insurance Commissioners’ Financial Condition Examiner’s Handbook as he may deem necessary.

13 NMAC 2.5.19 Report of Adverse Financial Condition

19.1 An insurer shall require its independent certified public accountant to report, in writing, within five business days to the Board of Directors or its audit committee any determination by him that the insurer has materially misstated its financial condition as reported to the superintendent as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of the New Mexico Insurance Code as of that date.



19.2 An insurer who has received a report of adverse financial condition shall forward a copy of the report to the superintendent within five business days of receiving it and shall furnish to the independent certified public accountant evidence that the report of adverse financial condition was forwarded to the superintendent.

19.3 If the independent certified public accountant fails to receive such evidence within the required five business day period, the independent certified public accountant shall furnish to the superintendent a copy of its report of adverse financial condition within the next five business days.

19.4 No independent public accountant shall be liable in any manner to any person for any statement made in connection with this section if such statement is made in good faith compliance with this section.

19.5 If the accountant, subsequent to the date of the audited financial report filed pursuant to this rule, becomes aware of facts which might have affected his report, the department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

13 NMAC 2.5.20 Report on Significant Deficiencies in Internal Controls

20.1 Within sixty days after the filing of the annual audited financial statements, each insurer shall furnish the superintendent with a written report prepared by the accountant describing any significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity.

20.2 The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

20.3 No report should be issued if the accountant does not identify significant deficiencies.

13 NMAC 2.5.21 Accountant’s Letter of Qualifications

The accountant shall furnish the insurer with a letter stating:

21.1 that the accountant is independent with respect to the insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and the Code of Ethics and Rules of Professional Conduct of the New Mexico State Board of Public Accountancy, or similar code;

21.2 the background and experience in general, and the experience in audits of insurers, of the staff assigned to the examination and whether each is an independent certified public accountant (however, nothing in this rule shall be construed as prohibiting the accountant from utilizing such staff as is deemed appropriate if such use is consistent with generally accepted auditing standards);

21.3 that the accountant understands that the annual audited financial report and his opinion will be filed in compliance with this rule and that the superintendent will rely on this information in the monitoring of the financial condition of insurers;

21.4 that the accountant consents to the requirements of this rule regarding CPA workpapers and agrees to make them available for review by the superintendent, his designee or his appointed agent.



21.5 that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing of the American Institute of Certified Public Accountants.

21.6 that the accountant is in compliance with the requirements of 13 NMAC 2.5.15 and 2.5.16.

13 NMAC 2.5.22 CPA Workpapers

22.1 For purposes of this rule, workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion.

22.2 Every insurer required by this rule to file an audited financial report, shall require the accountant to make available for review by department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance department or at any other reasonable place designated by the superintendent. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report.

22.3 Reviews by insurance department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as examination workpapers generated by the department. Photocopies of pertinent audit workpapers may be made and retained by the department.

13 NMAC 2.5.23 Exemptions

23.1 Upon written application of any insurer, the superintendent may grant an exemption from compliance with this rule if the superintendent finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer.

23.2 An exemption may be granted at any time and from time to time for a specified period or periods.

23.3 Within ten days from a denial of an insurer’s written request for an exemption from this rule, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the New Mexico Insurance Code, NMSA 1978, Chapter 59A, Article 4.

13 NMAC 2.5.24 Effective Dates for Reporting Requirements

24.1 Domestic insurers retaining a certified public accountant on the effective date of this rule who qualifies as independent shall be required to file all reports required by this rule for the year ending December 31, 1993 and each year thereafter, unless the superintendent permits otherwise.

24.2 Domestic insurers not retaining a certified public accountant on the effective date of this rule who qualifies as independent shall be required to file the following documents with the superintendent for the year ending December 31, 1993:

24.2.1 Report of independent certified public accountant;

24.2.2 Audited balance sheet;



24.2.3 Notes to audited balance sheet.

24.3 For the year ending December 31, 1994 and each year thereafter, such insurers shall file with the superintendent all reports required by this rule.

24.4 Foreign insurers shall comply with this rule for the year ending December 31, 1993 and each year thereafter, unless the superintendent permits otherwise.

13 NMAC 2.5.25 Canadian and British Companies

25.1 In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervisory authority, duly audited by an independent chartered accountant.

25.2 For such insurers, the letter of compliance required by Section 10 of this rule shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the superintendent pursuant to this rule and shall affirm that the opinion expressed is in conformity with such requirements.



NEW YORK STATUTES

Insurance Laws Chapter 28 Of The Consolidate Laws

Article 3 — Administrative and Procedural Provisions

Insurance Law Section 307(b) (1)

(b) (1) Every licensed insurer, except an assessment co-operative property/casualty insurance company having direct premiums written in this state of less than two hundred fifty thousand dollars in any calendar year and having less than five hundred policyholders or reinsurance contract holders at the end of such calendar year, shall be required to file within five months of the end of such calendar year, an annual financial statement (including an annual financial statement of any subsidiary of the type described in paragraph nine of subsection (a) of section one thousand four hundred four or subparagraph (B) of paragraph four of subsection (a) of section one thousand four hundred seven of this chapter) together with an opinion thereon of an independent certified public accountant on the financial statement of such insurer and any such subsidiary, which statement and opinion shall be available for public inspection at the office of the superintendent and the principal office of the insurer. Each such insurer shall furnish the superintendent with an evaluation by such accountant of the accounting procedures and internal control systems of the insurer that are necessary to the furnishing of the opinion. Each such insurer shall require the accountant to make available for review by the superintendent the work papers and any communications between the accountant and the insurer relating to the examination of the insurer. Any such work papers and communications made available to the superintendent shall be kept confidential, shall not be subject to subpoena and shall not be made public unless, after notice and opportunity to be heard, the superintendent determines that the interests of policyholders, stockholders or the public will be served by the publication thereof. Each such insurer shall require the accountant to notify the superintendent if the accountant has determined that the insurer has materially misstated its financial condition as reported to the superintendent or that the insurer does not meet minimum capital or surplus to policyholder requirements.

(2) If the insurer is part of a group of insurance companies which utilizes a pooling agreement or one hundred percent reinsurance agreement that affects the solvency and integrity of such insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool, then such insurer may file audited consolidated or combined financial statements in lieu of separate annual audited financial statements provided that a consolidating or combining exhibit be filed that clearly reconciles amounts in the audited financial statement to the individual company annual statements. In addition, an insurer may comply by filing statements prepared in accordance with generally accepted accounting principles, provided that appropriate reconciliation is made of the differences between net income and capital and surplus reported on that basis and that reported in the annual statutory statement filed with the superintendent.

(3) In lieu of the requirements of this subsection, the superintendent may accept copies of filings of audited financial statements required by another state where they are found to be substantially similar to the requirements herein. Upon written application of any insurer, extensions of the filing date and exemptions from the filing requirements may be granted by the superintendent, if the superintendent finds, upon review of the application, that compliance would constitute a financial or organizational hardship upon the insurer.



NEW YORK REGULATIONS

TITLE 11, Chapter IV Subchapter A.—Rules of General Application

Part 89. — Audited Financial Statements (Regulation 118)

11 NYCRR 89.1 Applicability and Filing Requirements

The following licensed insurers shall be subject to this Part and shall, on or before May 31st of each year make a filing in satisfaction of Section 307(b) of the Insurance Law. Life insurance companies and fraternal benefit societies shall file with the New York City Office of the Life. Property/casualty insurance companies, financial guaranty insurance companies, reciprocal insurers, title insurance corporations and mortgage guaranty insurance companies shall file with the New York City office of the Property Bureau. Accident and health insurance companies, Article 43 Corporations and Municipal Cooperative Health Benefit Plans shall file with the New York City office of the Health Bureau. Cooperative property/casualty insurance companies shall file with the Albany office of the Property Bureau.

11 NYCRR 89.2 Requirement for Independent Certified Public Accountant

Every insurer subject to this Part shall retain an independent Certified Public Accountant (CPA) who agrees by written contract with such insurer to comply with the provisions of Section 307(b) of the Insurance Law, this Part and the Code of Professional Conduct adopted by the American Institute of Certified Public Accountants (AICPA). Such contract must specify that:

(a) on or before May 31st, the CPA shall provide an audited financial statement of such insurer and of any subsidiary required by section 307(b)(1) of the Insurance Law together with an opinion on the financial statements of such insurer and any such subsidiary for the prior calendar year and an evaluation of the insurer’s and any such subsidiary’s accounting procedures and internal control systems as are necessary to the furnishing of the opinion;

(b) any determination by the CPA that the insurer has materially misstated its financial condition as reported to the superintendent or that the insurer does not meet minimum capital and surplus requirements set forth in the Insurance Law shall be given by the CPA, in writing, to the superintendent within fifteen (15) calendar days following such determination; and

(c) the workpapers and any communications between the CPA and the insurer relating to the audit of the insurer shall be made available for review by the superintendent at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the superintendent. The CPA must retain for review such workpapers and communications in accordance with the provisions of Part 243 of this Title (Regulation 152). More specifically, such workpapers and communications must be retained by the CPA for the period specified in sections 243.2(b)(7) and (c) of this Title. For the purposes of this subdivision, the workpapers and communication shall be deemed to have been created on the date the filing required by section 89.2(a) of this Part was submitted to the superintendent.

11 NYCRR 89.3 Exemptions

(a) An assessment co-operative property/casualty insurer otherwise subject to this Part with less than $250,000 in direct premiums written in New York state during the subject calendar year and less than five hundred (500) policyholders or reinsurance contract holders at the end of such calendar year shall, in lieu of the required filing, submit an affidavit sworn to by a responsible officer of the insurer



specifying the amount of direct premiums written in New York state and number of policyholders or reinsurance contract holders.

(b) Any insurer otherwise subject to this Part and not eligible for an exemption under subdivision (a) of this section may submit to the superintendent an exemption application, demonstrating that compliance with Sections 89.1 and 89.2 of this Part would cause a financial or organizational hardship. Applications for hardship exemptions must be filed with the Department prior to the end of the calendar year for which the exemption is being requested. The superintendent will render a written finding within sixty (60) days after submission of such an application.



NORTH CAROLINA REGULATIONS

TITLE 11, Chapter 11 Subchapter 11A.—General Provisions

Section .0500. — CPA Audits

11 NCAC 11A .0501 Purpose and Scope

(a) The purpose of this Section is to improve the Department’s surveillance of the financial condition of insurers by requiring an annual examination by CPAs of the financial statements reporting the financial condition and the results of operations of insurers.

(b) This Section applies to all insurers; provided that insurers having direct premiums written in North Carolina of less than two hundred fifty thousand dollars ($250,000) in any year and having less than 500 policyholders in North Carolina at the end of any year are exempt from this Section for such year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Insurers must notify the Department on or before October 1 of each year of their exempt status.

(c) Foreign insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports are exempt from this Section if:

(1) A copy of the Audited Financial Report and Report on Internal Control Structure Related Matters noted in an audit are filed with such other state.

(2) A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified by such other state.

This Section does not prohibit, preclude, or in any way limit the Commissioner from ordering, conducting, or performing examinations of insurers under the General Statutes or this Title.

11 NCAC 11A .0502 Definitions

As used in this Section:

(1) “Audited Financial Report” means those items specified in 11 NCAC 11A.0504.

(2) “Commissioner” means the Commissioner of Insurance of North Carolina or his authorized representative.

(3) “CPA” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice.

(4) “Insurer” means any insurance entity as identified in G.S. 58, Articles 7, 15, 16, 17, 26, 65 and 67 and regulated by the Department.

11 NCAC 11A .0503 Filing and Extensions for Filing Reports

(a) All insurers shall have an annual audit by a CPA and shall file an audited financial report with the Commissioner on or before May 10 for the previous calendar year. Two copies of this report shall be filed in the office of the Chief Examiner, Field Audit Section of the Department.



(b) An extension of the May 10 filing date may be granted by the Commissioner for a period of up to 45 days upon a showing by the insurer and its CPA of the reasons for requesting such extension and a determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than 15 days prior to the due date and must be in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

11 NCAC 11A .0504 Contents of Annual Audited Financial Report

(a) The annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for such year in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department.

(b) The annual Audited Financial Report shall include the following:

(1) Report of CPA.

(2) Balance sheet reporting admitted assets, liabilities, capital and surplus.



(5) Statement of changes in capital and surplus.

(6) Notes to financial statements. These notes shall be those required by the annual statement and the appropriate notes under generally accepted accounting principles and shall also include:

(A) reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to G.S. 58-2-165 with a written description of the nature of these differences,

(B) A narrative explanation of all significant intercompany transactions and balances, and

(C) The analysis of assets exhibit of the Annual Statement.

(7) The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings the same as the relevant sections of the Annual Statement of the insurer filed with the Commissioner, and:

(A) The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31; provided, however, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

(B) Amounts may be rounded to the nearest dollar.

(C) Upon written application of any insurer, the Commissioner may permit the filing of consolidated statutory financial statements provided columnar consolidating worksheets are included in the filing, showing each company separately, and including a listing and description of intercompany eliminations.



11 NCAC 11A .0505 Designation of CPA

(a) Each insurer required by this Section to file an annual audited financial report must within 60 days after becoming subject to such requirement or October 1, whichever is later, register with the Commissioner in writing the name and address of the CPA retained to conduct the annual audit set forth in this Section. Insurers not retaining a CPA on the effective date of this Section shall register the name and address of their retained CPA not less than two months before the date when the first certification is to be filed.

(b) The insurer shall obtain a letter from such CPA, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the North Carolina General Statutes and Administrative Code that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department, specifying such exceptions as he may believe appropriate. In addition, the CPA must affirm that he is aware of and will comply with the provisions of 11 NCAC 11A.0511.

(c) If a CPA who was not the CPA for the immediately preceding filed audited financial report is engaged to audit the insurer’s financial statements, the insurer shall within 30 days of the date the CPA is engaged notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter stating whether in the 24 months preceding such engagement there were any disagreements with the former CPA on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The insurer shall also in writing request such former CPA to furnish a letter addressed to the insurer stating whether the CPA agrees with the statements contained in the insurer’s letter, and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former CPA to the Commissioner together with its own.

11 NCAC 11A .0506 Qualifications of Independent CPA

(a) The Commissioner shall not recognize any person or firm as a CPA that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the CPA is licensed to practice.

(b) Except as otherwise provided in this Section, a CPA shall be recognized as independent as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the North Carolina State Board of Certified Public Accountant Examiners, or similar code.

(c) The Commissioner may hold a hearing to determine whether a CPA is independent and, considering the evidence presented, may rule that the CPA is not independent for purposes of expressing an opinion on the financial statements in the annual Audited Financial Report made pursuant to this Section and require the insurer to replace the CPA with another whose relationship with the insurer is independent within the meaning of this Section.

11 NCAC 11A .0507 Approval of CPA

(a) CPAs that practice pursuant to the provisions of this Section must file their intentions of such with the Department within 60 days of the effective date of this Section and thereafter by October 1 of each



year. The Department may reject such filing if the CPA does not meet its requirements. Inclusive within this filing must be evidence of the CPA’s expertise in the areas of insurance auditing and the insurance accounting. Such evidence must also demonstrate expertise in the areas of insurance auditing and insurance accounting for the staff assigned to the audit. In addition, the CPA must affirm that he is aware of and will comply with the provisions of 11 NCAC 11A.0511.

(b) The CPA may be deemed to be experienced in the areas of insurance auditing and accounting if the office filing with the Department pursuant to this Section has existing audit clients in the insurance industry.

(c) The staff assigned to an audit pursuant to this Section may be deemed to be experienced in the areas of insurance auditing and accounting as follows:

(1) Managerial staff that has been assigned or has had responsibility for audit engagements in the insurance industry in an amount averaging at least 30 percent of their chargeable time during the last three years.

(2) Non-managerial staff that has been assigned or has had responsibility for audit engagements in the insurance industry in an amount averaging at least 15 percent of their chargeable time during the last three years or during their period of employment if employed less than three years.

(d) An audit performed by a CPA pursuant to this Section shall be staffed by managerial staff experienced in the areas of insurance auditing and accounting and by majority or equal non managerial staff experienced in the areas of insurance auditing and accounting.

(e) As used in this Section, insurance includes financial services.

11 NCAC 11A .0508 Scope of Examination and Report of CPA

Financial statements furnished pursuant to 11 NCAC 11A.0504 shall be examined by a CPA. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards and such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the NAIC. The Commissioner may, from time to time, prescribe that additional auditing procedures be observed by the CPA in the examination of the financial statements of insurers pursuant to this Section.

11 NCAC 11A .0509 Notification of Adverse Financial Condition

(a) The insurer required to furnish the annual Audited Financial Report shall require the CPA to immediately notify in writing an executive officer and all Directors of the insurer of the final determination by that CPA that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of Chapter 58 of the General Statutes as of that date. The insurer shall furnish such notification to the Commissioner within five days of receipt thereof.

(b) If the CPA, subsequent to the date of the Audited Financial Report filed pursuant to this Section, becomes aware of facts that might have affected his report, the Department notes the obligation of the CPA to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.



11 NCAC 11A .0510 Internal Control Structure Related Matters

(a) In addition to the annual Audited Financial Report, each insurer shall furnish the Commissioner with two copies of a report of matters noted in an audit related to the internal control structure.

(b) A report of the evaluation by the CPA of the accounting procedures of the insurer and its system of internal control, including any remedial action taken or proposed, shall be filed annually by the insurer with the Department at the time of the filing of the annual Audited Financial Report.

(c) Such report shall follow the Form for Reports on Internal Control Structure Related Matters Noted in an Audit described in Volume 1, Section AU 325, of the Professional Standards of the American Institute of Certified Public Accountants.

11 NCAC 11A .0511 CPA Workpapers

(a) Workpapers are the records kept by the CPA of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the CPA in the course of his examination of the financial statements of an insurer that support his opinion thereof.

(b) Every insurer required to file an Audited Financial Report pursuant to this Section, shall require the CPA (through the insurer) to make available for review by Department examiners, all workpapers prepared, or legible copies thereof, in the conduct of his examination. The completed workpapers and any written communications between the CPA and the insurer relating to the audit of the insurer shall be made available for review by Department examiners at the offices of the insurer. The insurer shall require that the CPA retain the audit workpapers for the period of the audit but no longer than seven (7) years from the date of the audit report.

(c) In the conduct of any periodic review by the Department examiners, photocopies of pertinent audit workpapers may be made and retained by the Department.

11 NCAC 11A .0512 Exemptions and Effective Dates

(a) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this Section if the Commissioner finds, upon review of the application, that compliance with this Section would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from this Section, such insurer may request in writing a hearing on its application for an exemption.

(b) Insurers retaining a CPA on the effective date of this Section who qualifies under this Section shall comply with this Section for the year ending December 31, 1990, and each year thereafter.

(c) Insurers not retaining a qualified CPA on the effective date of this Section may meet the following schedule for compliance, unless the Commissioner permits otherwise.

(1) As of December 31, 1990, file with the Commissioner:

(A) Report of CPA.

(B) Audited balance sheet.



(C) Notes to audited balance sheet.

(2) For the year ending December 31, 1991, and each year thereafter, such insurers shall file with the Commissioner all reports required by this Section.

(d) Foreign insurers shall comply with this Rule for the year ending December 31, 1991, and each year thereafter, unless the Commissioner permits otherwise.

11 NCAC 11A .0513 Examinations

(a) The Commissioner shall determine the nature, scope, and frequency of examinations under this Section conducted by Department examiners pursuant to the Examination Law. Such examinations may cover all aspects of the insurer’s assets, liabilities, condition, affairs, and operations; and may include and be supplemented by audit procedures performed by CPAs as provided in this Section. The types of examinations under the provisions of this Section performed by Department examiners after the effective date of this Section shall be as follows:

(1) Comprehensive examinations will be performed when in the judgment of the Commissioner a complete examination of the condition and affairs of the insurer is necessary.

(2) Compliance examinations may consist of a review of the accountant’s workpapers defined under 11 NCAC 11A.0511 and a general review of the insurer’s corporate affairs and insurance operations to determine compliance with the North Carolina General Statutes and this Title. The examiners may perform alternative or additional examination procedures to supplement those performed by the CPA when the examiners determine that such procedures are necessary to verify the financial condition of the insurer.

(3) Targeted examinations may cover such areas as life reserve valuations, claims analyses, organizational and capital changes, and such other areas as the Commissioner deems to be appropriate.

(b) Upon completion of each examination described in this Rule, the examiner appointed by the Commissioner shall make a full and true report on the results of the examination.

11 NCAC 11A .0514 Seasoning Requirements

No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following that period of service the person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner shall consider the following factors in determining if the relief should be granted:

(1) Number of partners, expertise of the partners, or the number of insurance clients in the currently registered firm;



11 NCAC 11A .0515 Notes to Financial Statements

The notes to financial statements required 11 NCAC 11A.0504(b)(6)(A) shall be those required by the appropriate NAIC Annual Statement Instructions and NAIC Accounting Practices and Procedures Manual, including subsequent



amendments and editions. These publications are available from the National Association of Insurance Commissioners for a cost of $225 and $295 respectively. The address and telephone number of the NAIC are: NAIC Executive Headquarters, 2301 McGee, Suite 800, Kansas City, MO 64108-2604, (816) 842-3600.



NORTH CAROLINA INSURANCE DEPARTMENT BULLETIN

Bulletin 01-B2 Additional Reporting Requirements Under the CPA Audit Rule Title 11, North Carolina Administrative Code, Chapter 11a Section .0500

August 15, 2001

Bulletin Number 01-B-2, which is effective immediately, has been issued to replace Bulletin 99-B-8.

The CPA Audit Rule requires an annual audit by independent Certified Public Accountants (“CPA”) of the financial statements reporting the financial condition and the results of operations of a regulated entity. Additionally, there are other reporting requirements throughout the year, as outlined below:

October 1, PY March 1, CY April 25, CY May 10, CY

Accountant’s Appointment Letter (“AAL”) (New)

Notification of Exemption

Request for Extension Audited Financial Statements

Designation of CPA Request for Exemption

CPA Internal Control Letter

PY: Prior Year CY: Current Year

Note: Due dates that fall on weekends or holidays will be due the next business day.

Notifications and requests to the North Carolina Department of Insurance (“Department”) as specified in this Bulletin are to be addressed to the Chief Financial Examiner (contact information is provided at the end of the Bulletin).

Designation of CPA and Accountant’s Appointment Letter - October 1

Reference: 11 NCAC 11A.0505, .0506, .0507

The Department and representatives of the American Institute of Certified Public Accountants worked together in 2000 to simplify the administration of the CPA Audit Rule. The AAL (Attachment A) replaces the following: (1) The CPA Qualifications Letter, (2) the Awareness Letter, and (3) the CPA Qualification Form. Language in the AAL is specifically designed to address the requirements of the CPA Audit Rule and cannot be modified.

The CPA firm will provide the AAL to its regulated entity. The regulated entity will complete the CPA Designation Letter (Attachment B), attach the AAL and mail both to the Chief Financial Examiner no later than October 1st preceding the fiscal year end.

The Department’s responsibility regarding the appointment of a CPA is to disapprove those not qualified. The Department will not explicitly approve the appointment of CPA firms as was previously done.

Change in CPAs

Reference: 11 NCAC 11A.0512, .0505 (c)

Notification to the Department within 30 days of retaining a new CPA is required. If the new CPA is retained after September 1 of the current year, then the AAL and CPA Designation Letter is due with the above notification. If the new CPA is retained prior to September 1, then the AAL and CPA Designation Letter are due October 1. The above



referenced Administrative Code should be consulted for additional information that is required to be submitted to the Department.

Exemptions - March 1

Reference: 11 NCAC 11A.0501(b)

Exempt Status: Regulated entities having direct written premiums of less than $250,000 and less than 500 policyholders in North Carolina are automatically exempt from the CPA Audit Rule, unless the Department makes a specific finding that compliance is necessary to carry out its statutory responsibilities. Regulated entities must notify the Department on or before March 1 of their exempt status.

Reference: 11 NCAC 11A.0512

Exemption Request: Regulated entities required to comply with the CPA Audit Rule may request an exemption from these requirements. The Commissioner may grant such a request if compliance with this section would constitute a financial or organizational hardship on the regulated entity. The Department must receive exemption requests on or before March 1.

Extensions - April 25

Reference 11 NCAC 11A.0503(b)

A regulated entity may request one extension for one period of up to 45 days. Requests may be approved after determination of just cause. The Department must receive requests for extensions on or prior to April 25.

Audited Financial Statements and Other Required Filings-May 10

Reference: 11 NCAC 11A.0504, .0508, .0509, .0510

Regulated entities are required to file the Audited Financial Statements and Report of Matters Related to Internal Control Structure with the Department on or before May 10th.

The above referenced Administrative Codes should be consulted to determine the required information that must be included in the AFS. The exhibit referenced in 11 NCAC 11A.0504 (6)(C) is no longer a part of the Statutory Annual Statement and is therefore not applicable for future AFS filings.

The CPA must prepare a report which evaluates the regulated entity’s accounting procedures and systems of internal control, including any remedial action taken or proposed by the CPA, which shall be filed annually by the insurer with the Department at the time of filing of the AFS. Such report shall follow the “Form for Reports on Internal Control Structure Related to Matters Noted in an Audit” described in Volume 1, Section AU 325, of the Professional Standards of the American Institute of Certified Accountants.

Other Filings- Adverse Financial Condition

Reference 11 NCAC 11A.0509

Regulated entities must file with the Department any notification received from their CPA that an adverse financial condition is present. Notification of Adverse Financial Condition must be filed within five (5) days of receipt from the CPA.

Contact Information



Any questions concerning this Bulletin and all filings required by the CPA Audit Rule should be addressed to Robert Stanfield, Chief Financial Examiner, via the following: [email protected], telephone-919-424-6493, fax-919-715-1130, mailing address-North Carolina Department of Insurance, 401 Glenwood Avenue, Raleigh, NC 27603.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS NORTH DAKOTA

NORTH DAKOTA ADMINISTRATIVE CODE

Title 45, Article 03, Chapter 20-01 through 20-13

45-03-20-01 Purpose and Scope

The purpose of this chapter is to improve the North Dakota insurance department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers. Every insurer, as defined in section 45-03-20-02, is subject to this chapter, except a company, so defined, which is licensed only in North Dakota. The commissioner may exempt an insurer, or type of insurer, from the requirements of this chapter. Insurers having direct premiums written in this state of less than one million dollars in any calendar year and less than one thousand policyholders or certificate holders of directly written policies nationwide at the end of the calendar ear are exempt from this chapter for that year, unless the commissioner makes a specific finding that compliance is necessary for the commissioner to carry out statutory responsibilities, except that insurers having assumed premiums pursuant to contracts or treaties of reinsurance of one million dollars or more will not be so exempt. Foreign or alien insurers filing audited financial reports in another state, pursuant to the other state’s requirement of audited financial reports which has been found by the commissioner to be substantially similar to the requirements herein, are exempt from this chapter if:

1. A copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with another state are filed with the commissioner in accordance with the filing dates specified in sections 45-03-20-03, 45-03-20-10, and 45-03-20-11, respectively.

2. A copy of any notification of adverse financial condition report filed with another state is filed with the commissioner within the time specified in section 45-03-20-09.

This chapter nay not prohibit, preclude, or in any way limit the commissioner of insurance from ordering or conducting or performing examinations of insurers under the rules and regulations of the North Dakota department of insurance and the practices and procedures of the North Dakota department of insurance.

45-03-20-02 Definitions

1. “Accountant” and “independent certified public accountant” mean an independent certified public accountant or accounting firm in good standing with the American institute of certified public accountants and in all states in which they are licensed to practice.

2. “Audited financial report” means and includes those items specified in section 45-03-20-04.

3. “Insurer” means a licensed insurer as defined in North Dakota Century Code chapter 26.1-02.

45-03-20-03 Filing and extensions for filing of annual audited financial reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the commissioner on or before June first for the year ended December thirty-first immediately preceding. The commissioner may require an insurer to file an audited financial report earlier than June first with ninety days’ advance notice to the insurer.

Extensions of the June first filing date may be granted by the commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting an extension and determination by the commissioner of good cause for an extension. The request for extension must be submitted in writing not less



than ten days prior to the due date in sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

45-03-20-04 Contents of Annual Audited Financial Report

The annual audited financial report must report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the department of insurance of the state of domicile.

The annual audited financial report must include the following:


2. Balance sheet reporting admitted assets, liabilities, capital, and surplus.




6. Notes to financial statements. These notes must be those required by the appropriate national association of insurance commissioners annual statement instructions and the National Association of Insurance Commissioners Accounting Practices and Procedures Manual. These notes must also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to North Dakota Century Code section 26.1-03-07 with a written description of the nature of these differences.

7. The financial statements included in the audited financial report must be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner, and the financial statement must be comparative, presenting the amounts as of December thirty-first of the current year and the amounts as of the immediately preceding December thirty-first. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

45-03-20-05 Designation of Independent Certified Public Accountant

Each insurer required by this chapter to file an annual audited financial report within sixty days after becoming subject to the requirement, shall register with the commissioner in writing the name and address of the independent certified public accountant or accounting firm, generally referred to in this chapter as the “accountant,” retained to conduct the annual audit under this chapter. Insurers not retaining an independent certified public accountant on October 1, 1995, shall register the name and address of their retained certified public accountants not less than six months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant and file a copy with the commissioner stating that the accountant is aware of the provisions of the insurance code and the rules and regulations of the insurance department of the state of domicile that relate to accounting and financial matters and affirming that the accountant will express an opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying the exceptions as the accountant may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five business days notify the department of this event. The insurer shall also furnish



the commissioner with a separate letter within ten business days of the above notification stating whether in the twenty-four months preceding the event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused the accountant to make reference to the subject matter of the disagreement in connection with the accountant’s opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision making level, that is between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which the accountant does not agree; and the insurer shall furnish the responsive letter from the former accountant to the commissioner together with its own.

45-03-20-06 Qualifications of Independent Certified Public Accountant

1. The commissioner shall not recognize any person or firm as a qualified independent certified public accountant which is not in good standing with the American institute of certified public accountants and in all states in which the accountant is licensed to practice.

2. Except as otherwise provided herein, an independent certified public accountant must be recognized as qualified as long as the independent certified public accountant conforms to the standards of the independent certified public accountant’s profession, as contained in the code of professional ethics of the American institute of certified public accountants and rules and regulations and code of ethics and rules of professional conduct of the North Dakota board of accountancy, or similar code.

3. A partner or other person responsible for rendering a report may not act in that capacity for more than seven consecutive years. Following any period of service, the person must be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The commissioner may consider the following factors in determining if the relief should be granted:

a. Number of partners, expertise of the partners, or the number of insurance clients in the currently registered firm;

b. Premium volume of the insurer; or

c. Number of jurisdictions in which the insurer transacts business.

The requirements of this subsection become effective October 1, 1997.

4. The commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who:

a. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

b. Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this chapter; or



c. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this chapter.

5. The commissioner may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report made pursuant to this chapter and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this chapter.

45-03-20-07 Consolidated or Combined Audits

An insurer may make written application to the commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet must be filed with the report, as follows:

1. Amounts shown on the consolidated or combined audited financial report must be shown on the worksheet.

2. Amounts for each insurer subject to this section must be stated separately.


4. Explanations of consolidating and eliminating entries must be included.

5. A reconciliation must be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

45-03-20-08 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished under section 45-03-20-04 must be examined by an independent certified public accountant. The examination of the insurer’s financial statements must be conducted in accordance with generally accepted auditing standards. Consideration should also be given to other procedures illustrated in the financial condition examiner’s handbook promulgated by the national association of insurance commissioners as the independent certified public accountant deems necessary.

45-03-20-09 Notification of Adverse Financial Condition

The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five business days to the board of directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the North Dakota insurance statute as of that date. An insurer who has received a report under this section shall forward a copy of the report to the commissioner within five business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five business-day period, the independent certified public accountant shall furnish to the commissioner a copy of its report within the next five business days.



An independent public accountant is not liable in any manner to any person for any statement made in connection with this section if the statement is made in good faith in compliance with this section.

If the accountant, subsequent to the date of the audited financial report filed under this chapter, becomes aware of facts that might have affected the accountant’s report, the department notes the obligation of the accountant to take action as prescribed in volume 1, section AU 561 of the professional standards of the American institute of certified public accountants.

45-03-20-10 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, communication of internal control structure matters noted in an audit, AU section 325 of the professional standards of the American institute of certified public accountants, requires an accountant to communicate significant deficiencies known as “reportable conditions” noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report must be filed annually by the insurer with the department within sixty days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.

45-03-20-11 Accountant’s Letter of Qualifications


1. That the accountant is independent with respect to the insurer and conforms to the standards of the accountant’s profession as contained in the code of professional ethics and pronouncements of the American institute of certified public accountants and the rules of professional conduct of the North Dakota board of accountancy, or similar code.

2. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this chapter may be construed as prohibiting the accountant from utilizing the staff as deemed appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

3. That the accountant understands the annual audited financial report and the accountant’s opinion thereon will be filed in compliance with this chapter and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

4. That the accountant consents to the requirements of section 45-03-20-12 and that the accountant consents and agrees to make available for review by the commissioner, the commissioner’s designee, or the commissioner’s appointed agent, the workpapers, as defined in section 45-03-20-12.

5. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American institute of certified public accountants.

6. A representation that the accountant is in compliance with the requirements of section 45-03-20-06.



45-03-20-12 Definition, Availability, and Maintenance of Certified Public Accountant Workpapers

Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the independent certified public accountant’s examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents, and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the accountant’s examination of the financial statements of an insurer and which support the accountant’s opinion thereof.

Every insurer required to file an audited financial report under this chapter, shall require the accountant to make available for review by department examiners, all workpapers prepared in the conduct of the accountant’s examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance department, or at any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report.

In the conduct of the aforementioned periodic review by the department examiners, it must be agreed that photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners must be considered investigations and all working papers and communications obtained during the course of the investigations must be afforded the same confidentiality as other examination workpapers generated by the department.

45-03-20-13 Exemptions and Effective Dates

Upon written application of any insurer, the commissioner may grant an exemption from compliance with this chapter if the commissioner finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from this chapter, the insurer may request in writing a hearing on its application for an exemption. Such hearing must be held in accordance with the rules and regulations of the North Dakota department of insurance pertaining to administrative hearing procedures.

Domestic insurers retaining a certified public accountant on October 1, 1995, who qualify as independent shall comply with this chapter for the year ending December 31, 1996, and each year thereafter unless the commissioner permits otherwise.

Domestic insurers not retaining a certified public accountant on October 1, 1995, who qualify as independent may meet the following schedule for compliance unless the commissioner permits otherwise:

1. As of December 31, 1996, file with the commissioner:

a. Report of independent certified public accountant.

b. Audited balance sheet.


2. For the year ending December 31, 1996, and each year thereafter, the insurers shall file with the commissioner all reports required by this chapter.



Foreign insurers shall comply with this chapter for the year ending December 31, 1996, and each year thereafter, unless the commissioner permits otherwise.



OHIO STATUTES

TITLE XXXIX – Insurance Chapter 3901 – Superintendent of Insurance

3901.48 (Examination Work Papers) States in Part:

(A) The original work papers of a certified public accountant performing an audit of an insurance company or health insuring corporation doing business in this state that is required by rule or by any section of the Revised Code to file an audited financial report with the superintendent of insurance shall remain the property of the certified public accountant. Any copies of these work papers voluntarily given to the superintendent shall be the property of the superintendent. The original work papers or any copies of them, whether in possession of the certified public accountant or the department of insurance, are confidential and are not a public record as defined in section 149.43 of the Revised Code. The original work papers and any copies of them are not subject to subpoena and shall not be made public by the superintendent or any other person. However, the original work papers and any copies of them may be released by the superintendent to the insurance regulatory authority of any other state if that authority agrees to maintain the confidentiality of the work papers or copies and if the work papers and copies are not public records under the laws of that state.



OHIO REGULATIONS

TITLE 3901, Chapter 1 -- General Provisions Rule 50 -- Annual Audited Financial Reports

(A) Purpose and Scope

(1) This rule is issued by the Superintendent pursuant to Section 3901.041 of the Revised Code which requires the Superintendent to adopt, amend, and rescind rules and make adjudications necessary to discharge his duties and exercise his powers under Title XXXIX of the Revised Code, subject to Sections 119.01 to 119.13 of the Revised Code. This rule is issued to implement Sections 3901.04, 3901.07 and 3905.29 of the Revised Code.

(2) The purpose of this rule is to facilitate the department’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial condition and the results of operations of insurers. This rule shall apply to all insurers, except those insurers having direct premiums written in this state of less than one million dollars and having less than one thousand policyholders in this state at the end of any year are exempt from this rule for such year, unless the Superintendent makes a specific finding that compliance by the insurer is necessary for the Superintendent to carry out its statutory responsibilities. Insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports, which are found by the Superintendent to be substantially similar to the requirements herein, are exempt from this rule if:

(a) A copy of the audited financial report and the evaluation of accounting procedures and systems of internal control report which are filed with such other states are filed with the Superintendent in accordance with the filing dates specified in paragraph (C) of this rule. (Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance); and

(b) A copy of any notification or report of adverse financial condition filed with such other state is filed with the Superintendent within the time specified in paragraph (I) of this rule.

(3) This rule shall not prohibit, preclude or in any way limit the Superintendent from ordering, conducting and performing examinations of insurers under the rules and regulations and the practice and procedures of the department.

(B) Definitions

(1) “Audited financial report” means the annual report defined in and the items specified in paragraph (D) of this rule.

(2) “Accountant” and “independent certified public accountant” means an independent certified public accountant or accounting firm, as defined by the general standards of the “American Institute of Certified Public Accountants,” in good standing with the “American Institute of Certified Public Accountants” and in all states in which it is licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

(3) “Department” means the Department of Insurance.

(4) “Insurer” means a licensed insurer as defined in Chapter 1738., 3907., 3909., 3911., 3925., 3929. or 3953. of the Revised Code.



(5) “Statutory accounting practices” has the meaning defined in the current editions of Annual Statement Instructions and the Accounting Practices and Procedures Manual published by the National Association of Insurance Commissioners, or as otherwise prescribed by the insurance department of the insurer’s state of domicile.

(6) “Superintendent” means the Superintendent of Insurance of the state of Ohio.

(7) “Workpapers” means the records kept by an independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination of the financial statements of an insurer. Workpapers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules of commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support his or her opinion thereof.

(C) Filing and Extensions for Filing of Audited Financial Reports

All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report as a supplement to the annual statement with the Superintendent on or before June first for the immediately preceding year ended December thirty-first. Extensions of the June first filing date may be granted in writing by the Superintendent for thirty day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Superintendent of good cause for an extension. The request for an extension must be submitted in writing not less than ten days prior to the due date in sufficient detail to permit the Superintendent to make an informed decision with respect to the requested extension.

The superintendent may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

(D) Contents of Audited Financial Report

The audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of its operations, cash flow, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices. The audited financial report shall include the following items:




(4) Statement of cash flow;


(6) Notes to financial statements. These notes shall be those appropriate to a CPA audited financial report, based on applicability, materiality and significance, taking into account the subject covered in the instructions to and illustrations of how to report information in the notes to financial statements section of the NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall include:

(a) A reconciliation of differences, if any, between the audited statutory financial statements and the annual financial statement filed with the Superintendent including a written description of the nature of these differences; and



(b) A narrative explanation of all significant intercompany transactions and balances; and

(c) A summary of ownership and relationships of the insurer and all affiliated companies.

(7) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual financial statement of the insurer filed with the Superintendent and:

(a) The financial statements shall be comparative, presenting the amounts as of December thirty-first and the amounts as of the immediately preceding year ending December thirty-first. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted); and

(b) Amounts may be rounded to the nearest thousand dollars.

(E) Designation of Independent Certified Public Accountant

(1) Each insurer required by this rule to file an audited financial report must, within sixty days after becoming subject to such requirement, register with the Superintendent, in writing, the name and address of the independent certified public accountant retained to conduct the annual audit required in this rule. Insurers not previously retaining an independent certified public accountant shall register the name and address of their retained independent certified public accountant not less than six months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from such accountant, and file a copy of such letter with the Superintendent, stating that the accountant is aware of the provisions of the insurance code and the rules and regulations of the insurance department of its state of domicile that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements of the insurer in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by such insurance department, specifying such exceptions as he or she may believe appropriate. If an accountant, who was not the accountant for the insurer’s most recently filed audited financial report, is engaged to audit the insurer’s financial statements, the insurer shall, within thirty days of the date the accountant is engaged, notify the department of this event.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the Department of Insurance of this event. The insurer shall also furnish the Superintendent with a separate letter within ten (10) business days of the above notification stating whether in the twenty four months preceding such engagement there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. Disagreements contemplated by this paragraph are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also request, in writing, such former accountant to furnish a letter, addressed to the insurer, stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Superintendent, together with its own letter.



(F) Qualifications of Independent Certified Public Accountant

An insurer may not use any person or firm as an independent certified public accountant if such person or firm is not in good standing with the “American Institute of Certified Public Accountants” in all states in which the person or firm is licensed to practice or, for a Canadian or British company, that is not a chartered accountant. Except as otherwise provided herein, an insurer may use a certified public accountant as its independent certified public accountant only if and for as long as such accountant conforms to the standards of his or her profession, as contained in the “Code of Professional Conduct” of the “American Institute of Certified Public Accountants” and “Rules of Professional Conduct” of the accountancy board of Ohio, or similar code.

No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the superintendent of insurance for relief from the above rotation requirement on the basis of unusual circumstances. The superintendent may consider the following factors in determining if the relief should be granted: (1) number of partners, expertise of the partners or the number of insurance clients in the currently registered firm; (2) premium volume of the insurer; or (3) number of jurisdictions in which the insurer transacts business. The requirements of this paragraph shall become effective for years beginning after December 31, 1992.

The Superintendent shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who (1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. sections 1961- 1968, or any dishonest conduct or practices under federal or state law; (2) has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or (3) has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this requirement.

The Superintendent may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this requirement and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this requirement.

(G) Consolidated or Combined Audits

An insurer may make an annual written application to the Superintendent for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:


(2) Amounts for each insurer subject to this rule shall be stated separately;

(3) Non-insurance operations may be shown on the worksheet on a combined or individual basis;


(5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the financial statements of the insurers.



(H) Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to paragraph (D) of this rule shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards and consideration should be given to such other standards illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

(I) Notification of Adverse Financial Condition

(1) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing within five (5) business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the superintendent as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Revised Code as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the superintendent within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the superintendent. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the superintendent a copy of its report within the next five (5) business days.

(2) No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.

(3) If the accountant, subsequent to the date of the audited financial report filed pursuant to this rule, becomes aware of facts which might have affected his or her report, the department shall note the obligation of the accountant to take such action as prescribed in volume one, Section AU five hundred sixty one of the “Professional Standards of the American Institute of Certified Public Accountants,” as amended.

(J) Evaluation of Accounting Procedures and System of Internal Control

In addition to the audited financial report, each insurer shall furnish the Superintendent with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS no. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the superintendent within sixty (60) days after the filing of the annual audited financial report. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

(K) Accountant’s Letter of Qualifications.




(1) That he or she is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the “Rules of Professional Conduct” of the Accountancy Board of Ohio or other state board of public accountancy that performs the same licensing function.

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this requirement shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant understands the annual audited financial report and his or her opinion thereon will be filed in compliance with this requirement and that the superintendent will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) That the accountant consents to the requirements of paragraph (L) below and that the accountant consents and agrees to make available for review by the superintendent his designee or his appointed agent, the workpapers, as defined in paragraph (B)(7).

(5) A representation that the accountant is properly licensed by the Accountancy Board of Ohio and that he or she is a member in good standing in the American Institute of Certified Public Accountants.

(6) A representation that the accountant is in compliance with the requirements of paragraph (F).

(L) Availability and Maintenance of Independent Certified Public Accountant Workpapers

Every insurer required to file an audited financial report pursuant to this rule shall require the accountant to make available for review by department examiners the workpapers prepared in the conduct of his or her examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the department, or at any other reasonable place designated by the superintendent. The insurer shall require that the accountant retain the workpapers and communications until the domiciliary department has filed a report on examination covering the period of the audit, but for no longer than seven (7) years from the date of the audit report.

In the conduct of the aforementioned periodic review by the domiciliary department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the domiciliary department. Such reviews by the domiciliary department examiners shall be considered investigations and all workpapers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the domiciliary department.

(M) Exemptions and Effective Dates

(1) Upon written application of any insurer, the Superintendent may grant an exemption from compliance with this rule if the Superintendent finds, upon review of the application, that compliance with this rule would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for any specified period. Domestic insurers retaining an independent certified public accountant on the effective date of this rule shall comply with this rule for the year ending December 31, 1989, and each year thereafter unless the Superintendent permits otherwise. Domestic insurers not retaining an independent certified public accountant on the effective date of this rule shall meet the following schedule for compliance, unless the Superintendent gives his or her written permission otherwise.

(a) For the year ending December 31, 1989, file with the Superintendent:




(ii) Audited balance sheet; and


(b) For the year ending December 31, 1990, and each year thereafter, such insurers shall file with the Superintendent all reports required by this rule.

(2) Foreign insurers shall comply with this rule for the year ending December 31, 1989, and each year thereafter, unless the Superintendent gives his or her written permission otherwise.

(N) Canadian and British Companies

In the case of Canadian and British insurers, the audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant. For such insurers, the letter required in paragraph (E)(2) of this rule shall state that the accountant is aware of the requirements relating to the audited financial report filed with the Superintendent pursuant to paragraph (C) of this rule and shall affirm that the opinion expressed is in conformity with such requirements.

(O) Severability Provision

If any section or portion of a section of this rule or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the rule or the applicability of such provision to other persons or circumstances shall not be affected thereby.



OHIO BULLETINS

Miscellaneous Regulatory Material Department of Insurance “New Series” Bulletins

Bulletin 90-1 Annual Audited Financial Reports – Consolidated Financial Statements

May 8, 1990

Section 3901-1-50 of the Ohio Administrative Code, entitled “Annual Audited Financial Reports” (the “Rule”), requires licensed insurance companies, as defined in Sections 1738, 3907, 3909, 3929 or 3953 of the Revised Code (“Insurers”) to have an independent certified public accountant conduct an annual audit of the financial statements reporting such Insurer’s financial condition and results of its operations.

Section (G) of the Rule allows Insurers to make a written application to the Superintendent of Insurance for approval to file consolidated or combined financial statements in lieu of separate annual audited financial statements. To be considered by the Superintendent, any such application for 1990 and subsequent years should demonstrate that: (1) the Insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the Insurer’s reserves, or (2) the Insurer is the parent company of a group of insurance companies and the parent is the only insurance company in the group which is licensed to do business in the State of Ohio.

George Fabe

Director of Insurance


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS OKLAHOMA

OKLAHOMA STATUTES

Oklahoma Statutes, Title 36, Section 311(A)

Section 311 (Insurers: annual reports; certificates of authority), Subsection A, of the Oklahoma Statutes states in part:

“Each insurer authorized to do business under the provisions of this Code shall, annually, on or before the first day of March, file in the office of the Insurance Commissioner and with the National Association of Insurance Commissioners (NAIC), statements which shall exhibit its financial condition on the thirty-first day of December of the previous year and its business of that year…The statements shall be in such general form and context as approved by the National Association of Insurance Commissioners for the kinds of insurance to be reported upon, and as supplemented for additional information required by the Insurance Commissioner by rule. In addition, the statements shall be prepared in accordance with the NAIC Annual Statement Instruction Handbooks, including any supplemental filings described in the NAIC Annual Instruction Handbook and follow the accounting procedures and practices prescribed by the NAIC Accounting Practices and Procedures Manuals…”


NAIC GUIDE TO OMPLIANCE WITH STATE AUDIT REQUIREMENTS OREGON

OREGON REGULATIONS

Chapter 836, Division 11 --Annual Audited Financial Reports

OAR 836-11-100 Authority; Effective Date

(1) OAR 836-11-100 to 836-11-230 are adopted by the Director pursuant to ORS 731.488.

(2) OAR 836-11-100 to 836-11-230 are effective upon filing with the Secretary of State. Each insurer to which OAR 836-11-120 applies shall file the first audited financial report with the Director required by OAR 836-11-120 on or before June 1, 1992, for the year ending December 31 immediately preceding.

(3) OAR 836-11-100 to 836-11-230 do not limit the Director’s authority to order, conduct or perform examinations of insurers under the Insurance Code.

OAR 836-11-110 Definition of Independent Certified Public Accountant

As used in OAR 836-11-100 to 836-11-230, “accountant” and “independent certified public accountant” mean an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in each state in which the accountant or accounting firm is licensed to practice. For a Canadian or British insurer, the term means a Canadian-chartered or British-chartered accountant.

OAR 836-11-120 Filing and Extensions for Filing of Annual Audited Financial Reports

(1) Each insurer shall have an annual audit performed by an independent certified public accountant and shall file an audited financial report with the Director on or before June 1 for the year ending December 31 immediately preceding. The report must satisfy the requirements of OAR 836-11-140.

(2) The Director may require an insurer to file an audited financial report on a date earlier than June 1 if the Director gives the insurer not less than 90 days’ notice prior to the earlier date.

(3) The Director may grant one or more 30-day extensions of the June 1 filing date upon request of the insurer if the insurer and the independent certified public accountant performing the audit show the reasons for requesting the extension and if the Director determines that good cause exists for the extension. The request for extension must be submitted in writing not less than ten days prior to the filing date and must be signed by the insurer and the independent certified public accountant. The request must include sufficient detail to permit the Director to make an informed decision.

(4) The requirement under section (1) of this rule is subject to exemptions under OAR 836-11-130.

OAR 836-11-130 Exemptions

(1) The following insurers are exempt from the requirements of OAR 836-11-100 to 836-11--230:

(a) An insurer having direct premiums written in this state of less than $1,000,000 in any calendar year and having fewer than 1,000 policyholders or certificate holders of directly written policies nationwide at the end of the same calendar year is exempt from OAR 836-11-100 to 836-11-230 for such year unless the Director determines with respect to the insurer that compliance is necessary for the Director to carry out statutory responsibilities. The exemption under this subsection does not apply to any insurer that has assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1,000,000 or more.



(b) A foreign or alien insurer that has filed an audited financial report in another state pursuant to the other state’s requirement of audited financial reports, if the Director determines that the other state’s requirements are substantially similar to the requirements of OAR 836-11-100 to 836-11-230 and if the foreign or alien insurer does both of the following:

(A) Files with the Director a copy of the Audited Financial Report, the Report on Significant Deficiencies in Internal Controls and the Accountant’s Letter of Qualifications that are filed with the other state, in accordance with the filing dates specified in OAR 836-11-120, 836-11-200 and 836-11-210. In lieu of the requirements of this paragraph, a Canadian insurer may file accountants’ reports as filed with the Canadian Dominion Department of Insurance.

(B) Files with the Director a copy of any Notification of Adverse Financial Condition Report filed with the other state. The copy must be filed with the Director within the time specified in OAR 836-11-190.

(c) An insurer to whom the Director has granted an exemption under section (2) of this rule, during the period in which the exemption is effective.

(2) Upon written application of any insurer, the Director may grant an exemption from compliance with OAR 836-11-100 to 836-11-230 if the Director finds upon review of the application that compliance would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods.

OAR 836-11-140 Contents of Annual Audited Financial Report

(1) An annual audited financial report required under OAR 836-11-120 must report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed or otherwise permitted by the Department of Insurance of the state of domicile.


(a) A report of an independent certified public accountant.

(b) A balance sheet reporting admitted assets, liabilities and capital and surplus.

(c) A statement of operations.



(f) Notes to financial statements. The notes shall include those required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include the following:

(A) A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to ORS 731.574, with a written description of the nature of the differences.



(B) A summary of ownership and relationships of the insurer and all affiliated companies.

(3) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Director. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

OAR 836-11-150 Designation of Independent Certified Public Accountant

(1) An insurer shall obtain a letter from the certified public accountant retained by the insurer stating that the accountant is aware of the provisions of the Insurance Code and the rules of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that the accountant will express the opinion of the accountant on the financial statements in terms of their conformity with the statutory accounting practices prescribed or otherwise permitted by that Department, specifying exceptions that the accountant believes appropriate.

(2) If the certified public accountant who was the certified public accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall so notify the Director not later than the fifth business day after the dismissal or resignation. The insurer shall also do the following:

(a) Notify the Director in a separate letter whether in the 24 months preceding the engagement there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure that, if not resolved to the satisfaction of the former accountant, would have caused the former accountant to make reference to the subject matter of the disagreement in connection with the accountant’s opinion. The disagreements required to be reported in response to this subsection include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction, and are those disagreements that occur at the decision making level, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report.

(b) Request the former accountant, in writing, to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which the accountant does not agree.

(c) Furnish the Director the letter received from the former accountant under subsection (b) of this section together with a response by the insurer to that letter.

(3) When an insurer engages a certified public accountant to audit the insurer’s financial statements and the certified public accountant is not the certified public accountant who prepared the immediately preceding filed audited financial report for the insurer, the insurer shall notify the Director of the engagement not later than the 30th day after the effective date of the engagement.

OAR 836-11-160 Qualifications of Independent Certified Public Accountant

(1) The Director shall not recognize any person as a qualified independent certified public accountant for the purposes of OAR 836-011-100 to 836-011-230 if the person:



(a) Is not in good standing with the American Institute of Certified Public Accountants and in all states in which the person is licensed to practice as a certified public accountant or, if the insurer is a Canadian or British insurer, the person is not a chartered accountant; or

(b) With respect to the audit of the insurer, has either directly or indirectly entered into an agreement of indemnity or a release from liability, the intent or effect of which is to shift or limit in any manner the potential liability of the person for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing or other misrepresentations made by the insurer or its representatives.

(2) Except as otherwise provided in this rule, the Director shall recognize a certified public accountant as qualified as long as the certified public accountant conforms to the standards of the certified public accountant profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and the rules and the Code of Professional Conduct of the Oregon State Board of Accountancy, or a similar code of conduct of the state board regulating the practice of accountancy in the state in which the accountant is licensed to practice.

(3) A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. In the event of a delinquency proceeding commenced against the insurer under ORS 734.130, however, the mediation or arbitration provisions shall operate at the option of the statutory successor.

(4) No partner or other person employed by an independent certified public accounting firm that is responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service, the partner or other person shall not act in that or a similar capacity for the same insurer or its insurance subsidiary or affiliate for a period of two years. An insurer may apply to the Director for relief from the prohibition in this section on the basis of unusual circumstances. The Director may consider the following factors in determining whether the relief should be granted:

(a) The number of partners, the expertise of the partners or the number of insurance clients in the currently registered firm.

(b) The premium volume of the insurer.

(c) The number of jurisdictions in which the insurer transacts insurance.

(5) Section (3) of this rule first applies January 1, 1994. For purposes of the initial application of section (3) of this rule, the period of seven consecutive years’ service includes consecutive years of service immediately preceding January 1, 1994.

(6) An insurer shall not retain an individual as an independent certified public accountant, or submit any annual audited financial report required by OAR 836-11-100 to 836-11-230 that is prepared in whole or part by an individual, who:

(a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 USC Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

(b) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under OAR 836-11-100 to 836-11-230; or



(c) Has failed to detect or disclose material information in any report filed under OAR 836-11-100 to 836-11-230.

(7) The Director may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing the accountant’s opinion on the financial statements in the annual audited financial report made pursuant to OAR 836-11-100 to 836-11-230 and require the insurer to replace the accountant with another accountant who is qualified with respect to the insurer as provided in OAR 836-11-100 to 836-11-230.

OAR 836-11-170 Consolidated or Combined Audits

An insurer may apply in writing to the Director for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurers that uses a pooling or one hundred percent reinsurance agreement affecting the solvency and integrity of the insurer’s reserves and if the insurer cedes all of its direct and assumed business to the pool. In such a case, a columnar consolidating or combining worksheet shall be filed with the report as follows:


(2) Amounts for each insurer subject to this rule shall be stated separately.




OAR 836-11-180 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to OAR 836-11-140 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements must be conducted in accordance with generally accepted auditing standards. Consideration shall also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the certified public accountant determines to be necessary.

OAR 836-11-190 Notification of Adverse Financial Condition

(1) An insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Director as of the date of the balance sheet currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Oregon Insurance Code as of that date. The insurer shall require the independent certified public accountant to submit the report not later than the fifth business day after the independent certified public accountant makes such a determination. An insurer that has received a report under this section shall forward a copy of the report to the Director not later than the fifth business day after receiving the report and shall provide the independent certified public accountant with evidence that the report was furnished to the Director. If the independent certified public accountant does not receive the



evidence within the required period, the independent certified public accountant shall furnish to the Director a copy of its report not later than the fifth day after the end of the period within which the insurer was required to submit the report.

(2) An independent certified public accountant shall not be liable to any person for any statement made in connection with the requirements of section (1) of this rule if the statement is made in good faith and in compliance with section (1) of this rule.

(3) If the accountant, after the date of the audited financial report filed pursuant to OAR 836-11-100 to 836-11-230, becomes aware of facts that might have affected the report, the Director notes the obligation of the accountant to act as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

OAR 836-11-200 Report on Significant Deficiencies in Internal Controls

(1) If an independent certified public accountant communicates to an insurer during an audit any significant deficiencies in the insurer’s internal control structure, the insurer shall furnish the Director a written report prepared by the accountant describing the deficiencies. The report must be filed not later than the 60th day after the filing of the annual audited financial statement to which the report applies. Preparation of the report is subject to SAS no. 60, Communications of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants), which requires an accountant to communicate significant deficiencies, known as “reportable conditions,” noted during a financial statement audit to the appropriate parties within an entity.

(2) The insurer shall submit with the report required under section (1) of this rule a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.

OAR 836-11-210 Accountant’s Letter of Qualifications

(1) An insurer shall include with the filing of each annual audited financial report with the Director a letter meeting the requirements of section (2) of this section from the independent certified public accountant who prepared the report.

(2) The independent certified public accountant who prepares an annual audited financial report for an insurer shall furnish the insurer, in connection with the report, a letter stating the following:

(a) That the accountant is independent with respect to the insurer and conforms to the standards of the accounting profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Oregon State Board of Accountancy, or a similar code of conduct of the state board regulating the practice of accountancy in the state in which the accountant is licensed to practice.

(b) The background and experience in general, and the experience in audits of insurers specifically, of the staff assigned to the engagement and whether each is an independent certified public accountant.

(c) That the accountant understands that the annual audited financial report and the opinion of the accountant thereon must be filed in compliance with OAR 836-11-100 to 836-11-230 and that the Director may rely on the information contained in the report and opinion in the



monitoring and regulation of the financial position of the insurers with respect to whom the report and opinion are filed.

(d) That the accountant consents to the requirements of OAR 836-11-100 to 836-11-230 and that the accountant agrees to make the workpapers described in OAR 836-11-220 available for review by the Director.

(e) A representation that the accountant is currently licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(f) A representation that the accountant is in compliance with OAR 836-11-160.

(3) This rule does not prohibit an independent certified public accountant from using such staff as the accountant determines appropriate when use of the staff is consistent with the standards prescribed by generally accepted auditing standards.

OAR 836-11-220 Certified Public Accountant Workpapers

(1) Each insurer required to file an audited financial report pursuant to OAR 836-11-100 to 836-11-230 shall require the independent certified public accountant performing the audit to make available for review by Department examiners the workpapers prepared in the conduct of the accountant’s examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Division of the Department of Insurance and Finance, or at any other place designated by the Director. The insurer shall require that the accountant retain the audit workpapers and communications until the Director has filed a Report on Examination covering the period of the audit but in any event not longer than seven years from the date of the audit report. For purposes of this rule, workpapers include:

(a) The records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to the examination by the accountant of the financial statements of the insurer.

(b) Audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of examination of the financial statements of an insurer, supporting the opinion of the accountant.

(2) In the conduct of an examination of an insurer by the Director, the insurer and independent certified public accountant shall allow the Director to make and retain copies of pertinent audit workpapers. Such reviews by the Director are investigations and all working papers and communications obtained in the course of such investigations are afforded the same confidentiality as other examination workpapers generated by the Director under the Insurance Code.

OAR 836-11-230 Canadian and British Companies

In the case of Canadian and British insurers, the annual audited financial report is the annual statement of total business on the form filed by such companies with their domiciliary supervision authority and audited by an independent chartered accountant. For such insurers, the letter required under OAR 836-11-150 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Director under OAR 836-11-120 and shall affirm that the opinion expressed is in conformity with such requirements.



PENNSYLVANIA REGULATIONS

TITLE 31, PART VIII, -- Miscellaneous Provisions Chapter 147 -- Annual Audited Insurers’ Financial Report Required

§ 147.1. Purpose

The purpose of this chapter is to improve the Department’s surveillance for the financial condition of insurers by requiring an annual audit by independent certified public accountants of the financial statements reporting the financial condition and the results of operations of such insurers.

§ 147.2. Definitions

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:

Audited financial report— The term includes those items specified in § 147.4 (relating to contents of annual audited financial report).

Commissioner—The Insurance Commissioner of the Commonwealth.

Department—The Insurance Department of the Commonwealth.

Independent Certified Public Accountant—

(i) A certified public accountant licensed, or an accounting firm registered, to practice in this Commonwealth under The C.P.A. Law (63 P.S. §§ 9.1—9.16b) or in another state with similar licensing requirements, in good standing with the American Institute of Certified Public Accountants, Inc., and in good standing in the states in which the certified public accountant is licensed or the accounting firm is registered to practice; who conforms to the standards of the profession as contained in the “Code of Professional Ethics of the American Institute of Certified Public Accountants, Inc.” and The C.P.A. Law or similar laws.

(ii) For Canadian and British companies, a Canadian–chartered or British–chartered accountant.

Insurer—

(i) The term includes any of the following licensed to transact business in this Commonwealth:

(A) An insurance company, association or exchange.

(B) A reciprocal or interinsurance exchange.

(C) The Inspection Bureau, the Industry Placement Facility and the Fair Plan coming under the Pennsylvania Fair Plan Act (40 P.S. §§ 1600.101–1600.502).

(D) A hospital plan corporation.

(E) A professional health services plan corporation.

(F) A health maintenance organization.

(G) A fraternal benefit society or beneficial association.



(H) Another person, corporation, company, partnership, association or other entity acting as an insurer.

(ii) Except as otherwise noted, the term also includes a continuing care provider licensed to transact business in this Commonwealth.

§ 147.3. Filing and Extensions for Filing of Annual Audited Financial Reports

(a) Every insurer, unless exempted by the Commissioner under § 147.13 (relating to effective date and exemption), shall have an annual audit performed by an independent certified public accountant and shall file with the Commissioner an audited financial report for that year on or before June 1 for the year ending December 31 immediately preceding unless an extension is granted under subsection (b). The Commissioner may require an insurer to file an audited financial report earlier than June 1 by providing 90 days’ advance notice to the insurer

(b) Extensions of the filing date may be granted by the Commissioner for 30-day periods upon showing, by the insurer and its independent certified public accountant, the reasons for requesting an extension by the Commissioner. The request for extension shall be submitted in writing at least 10 days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

(c) Subsections (a) and (b) do not apply to continuing care providers. In accordance with the law and regulations relating to continuing care providers, each continuing care provider shall have an annual audit performed by an independent certified public accountant and shall file with the Commissioner an audited financial report for that year within 4 months following the end of the provider’s fiscal year.

(d) Audited financial reports filed with the Commissioner will be open to the public for examination and inspection.

§ 147.4. Contents of Annual Audited Financial Report

(a) The annual audited financial report shall reflect the financial condition of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department. Statutory accounting practices are those practices and procedures prescribed by the Accounting Practices and Procedures Manuals published by the National Association of Insurance Commissioners, or as otherwise prescribed or provided by specific statutes, regulations, orders or rulings of the Commonwealth or the Department.

(b) The annual audited financial report shall, at a minimum, include the following:

(1) Financial statements that present in a comparable manner, as of the end of the current and the preceding calendar year, the financial condition of the insurer, including the following:

(i) Balance sheet reporting admitted assets, liabilities, capital and surplus.

(ii) Statement of operations.

(iii) Statement of cash flows.

(iv) Statement of changes in capital and surplus.



(2) Notes to financial statements. These notes shall be those required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and Accounting Practices and Procedures Manual. The notes shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed with the Department, with a written description of the nature of these differences, particularly with respect to surplus or stockholder equity and the results of operations. The insurer shall file an amendment to its annual statement with the Department, the National Association of Insurance Commissioners and other states in which the insurer is licensed, to reflect differences between the audited statutory financial statement and the annual statement filed with the Department within 60 days of the filing date of the audited financial report. The Commissioner may require amendments to financial statements to be filed with the Department and the National Association of Insurance Commissioners on diskettes or other electronic information storage devices acceptable to the Commissioner.

(3) The report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, report on significant deficiencies in internal controls and letter of qualifications of the independent certified public accountant.

(c) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Department, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. In the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted if sufficient detail is made available to the Department upon request. An account which represents less than 5% of the insurer’s admitted assets may be aggregated for reporting purposes, except that all invested asset accounts shall be separately reported.

(d) If an error is discovered after a report is filed, the accountant shall withdraw the report and issue a corrected report within 30 days of discovery of the error. To the extent that the error requires an amendment to the insurer’s annual financial statement filed with the Department, the insurer shall file an amendment under subsection (b)(2).

§ 147.5 Designation of Independent Certified Public Accountant

(a) Each insurer required by this chapter to file an annual audited financial report shall, within 60 days after becoming subject to the requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this chapter. Insurers which have not retained an independent certified public accountant by November 11, 1995, shall engage and register the name and address of an independent certified public accountant with the Commissioner at least 6 months before the date when the first audited financial report is required to be filed. This subsection does not apply to insurer which registered with the Commissioner in writing the name and address of an independent certified public accountant in compliance with this chapter prior to November 11, 1995.

(b) The insurer shall obtain a letter from its independent certified public accountant and file a copy with the Commissioner, stating that the independent certified public accountant is aware of the provisions of the insurance statutes and regulations that relate to accounting and financial matters of the State in accordance with whose regulation the audited financial report is made and affirming that the independent certified public accountant will express an opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the



Department, specifying the exceptions the independent certified public accountant may believe appropriate.

(c) If any independent certified public accountant who was the independent certified public accountant for the immediately preceding filed audited financial report is dismissed, resigns or is otherwise replaced, the insurer shall within 5 business days notify the Department of the dismissal, resignation or replacement. Within 10 business days of submitting a notification of dismissal, resignation or replacement, the insurer shall also furnish the Commissioner with a separate letter stating whether, in the 24 months preceding the dismissal, resignation or replacement, there were disagreements with the former independent certified public accountant on a matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former independent certified public accountant, would have caused the independent certified public accountant to make reference to the subject matter of the disagreement in connection with the independent certified public accountant’s opinion. The disagreements required to be reported include both those resolved to the former independent certified public accountant’s satisfaction. For purposes of this subsection, disagreements are those that occur at the decision making level—that is, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering the report. The insurer shall also in writing request the former independent certified public accountant to furnish it a letter addressed to the insurer stating whether the independent certified public accountant agrees with the statements contained in the letter of the insurer and, if not, stating the reasons for which the independent certified public accountant does not agree. The insurer shall furnish the responsive letter from the former independent certified public accountant to the Commissioner together with its own.

§ 147.6 Qualifications of Independent Certified Public Accountant

(a) The Commissioner will not recognize a person as an qualified independent certified public accountant who is not licensed, or a firm which is not registered to practice and is not in good standing under the laws of this Commonwealth or of a state with licensing requirements similar to the Commonwealth or who is not in good standing with licensing requirements similar to the Commonwealth or who is not in good standing with the American Institute of Certified Public Accountants, Inc., and in good standing in all states in which the accountant is licensed or the firm is registered to practice or for a Canadian or British company who is not a chartered accountant.

(b) Except as otherwise provided in this section, an independent certified public accountant will be recognized as independent and qualified who conforms to the standards of the profession as contained in the “Code of Professional Ethics of the American Institute of Certified Public Accountants, Inc.” and The C.P.A. Law (63 P.S. §§ 9.1–9.16b) or similar laws.

(c) A partner or other person responsible for rendering an audited financial report may not act in that capacity for more than 7 consecutive years. Following a 7–year period of service, the person will be disqualified from acting in that or a similar capacity for the same insurer on its insurance subsidiaries or affiliates for 2 years. An insurer may apply to the Commissioner for relief from the rotation requirement on the basis of unusual circumstances. In determining if the relief should be granted, the Commissioner may consider the following factors:

(1) The number of partners, the expertise of the partners or the number of insurance or continuing care provider clients in the currently registered firm.

(2) The premium volume of the insurer or revenue volume of the continuing care provider.

(3) The number of jurisdictions in which the insurer transacts business.



(d) The Commissioner will not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report prepared in whole or in part by a natural person who meets one of the following conditions:

(1) The person has been convicted of fraud, bribery, a violation of 18 U.S.C.A. Chapter 96 (relating to the Racketeer Influenced and Corrupt Organizations) or any dishonest conduct or practice under Federal or state law.

(2) The person has been found to have violated the insurance laws of the Commonwealth with respect to previous reports submitted under this chapter.

(3) The person has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this chapter.

(e) The Commissioner may hold a hearing in accordance with 2 Pa.C.S. §§ 501–508 and 701–704 (relating to Administrative Agency Law) and Chapters 56–58 (relating to special rules of administrative practice and procedure: publication of citations and notice of hearings; and objections and procedure for hearings on reports on examination) to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not independent or qualified, or both, for purposes of expressing an opinion on the financial statements in the audited financial report made under this chapter and may require the insurer to replace the certified public accountant.

(f) If the Commissioner has reason to believe that an audit performed contains a material departure from generally accepted auditing standards, the Commissioner may refer the matter to the State Board of Accountancy and the American Institute of Certified Public Accountants, Inc., for review and determination. Upon findings by the State Board of Accountancy or the American Institute of Certified Public Accountants, Inc., that a certified public accountant violated applicable standards relating to competence, the performance of audits, accounting principles or other professional conduct, the Commissioner will not accept the audited financial report for that audit and will no longer accept audited financial statements certified by that certified public accountant.

(g) Within 60 days of receipt of notice from the Commissioner of a finding under subsection (f) that an audit contains a material departure from generally accepted auditing standards, the insurer for which the audit was performed shall register with the Commissioner the name and address of a qualified independent certified public accountant retained by the insurer to perform an audit in compliance with this chapter for the year for which the finding was made. The audited financial report for the year for which the finding was made shall be filed within a time period to be determined by the Commissioner.

§ 147.7 Consolidated or Combined Audits

(a) An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial reports in lieu of separate annual audited financial reports if the insurer is part of a group of insurance companies which utilizes a pooling or 100% reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. A columnar consolidating or combining worksheet, setting forth the amounts shown on the consolidated or combined audited financial report with a reconciliation of differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurer, shall be filed with the report. The reconciliation shall include explanations of consolidating and eliminating entries. Noninsurance operations may be shown on the worksheet on a combined or individual basis.



Consolidated or combined audited financial reports shall be prepared in conformity with statutory accounting practices as set forth in § 147.4(a) (relating to contents of annual audited financial report).

(b) The Commissioner may require an insurer to file separate annual audited financial reports.

(c) This section does not apply to continuing care providers.

§ 147.8 Scope of Examination and Report of Independent Accountant

The annual financial statements filed by an insurer with the Department shall be audited by an independent certified public accountant. The audit of the financial statements of the insurer shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to other procedures illustrated in the Financial Condition Examiner’s Handbook contained in the examiners handbook adopted by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary. The Commissioner may from time to time prescribe that additional auditing procedures be observed by the independent certified public accountant in the audit of the financial statements of insurers under this chapter.

§ 147.9 Notification of Adverse Financial Condition

(a) An insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within 5 business days to the board of directors or audit committee of the insurer, a determination by that independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or of a determination that the insurer does not meet its capital and surplus requirement calculated in accordance with Pennsylvania insurance statutes as of that date.

(b) An insurer required by this chapter to file an annual audited financial report who receives any report from the independent certified public accountant, as required by this section, shall forward a copy of the report to the Commissioner within 5 business days of receipt of the report with evidence of the report being furnished to the Commissioner. If within the required 5 business day period, the independent certified public accountant does not receive evidence from the insurer of the report being furnished to the Commissioner, the independent certified public accountant shall directly furnish to the Commissioner a copy of the report within the next 5 business days.

(c) The engagement letter executed by the insurer and the independent certified public accountant shall expressly provide that the independent certified public accountant is not liable in any manner to the insurer for a statement made under subsection (b) if the statement is made in good faith in compliance with that subsection.

(d) If the independent certified public accountant, subsequent to the date of the annual audited financial report filed under this chapter, becomes aware of facts which might have affected the independent certified public accountant’s report, the independent certified public accountant is required to take action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants, Inc. If, pursuant to the auditing standards for subsequent discovery of facts, the independent certified public accountant advises the insurer to make appropriate disclosure of newly discovered facts, the insurer shall provide the Department with written notice of the independent certified public accountant’s advice within 5 business days of receipt of that advice.



§ 147.10 Report on Significant Deficiencies in Internal Controls

(a) Concurrently with the filing of the annual audited financial reports, each insurer shall furnish the Commissioner with a written report prepared by the independent certified public accountant describing a significant deficiencies in the insurer’s internal control structure noted by the independent certified public accountant during the audit. The Statement of Auditing Standard No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants, Inc.) requires an independent certified public accountant to communicate significant deficiencies, known as “reportable conditions,” noted during a financial statement audit to the appropriate parties within an entity. A report should not be issued if the independent certified public accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within 60 days after the filing of the annual audited financial report.

(b) The insurer is required to provide, within 60 days of the date of the independent certified public accountant’s report on significant deficiencies, a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the independent certified public accountant’s report.

31 § 147.11 Definitions, Availability, and Maintenance of Independent Certified Public Accountant Workpapers

(a) Workpapers are the records kept by independent certified public accountant of the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to audit of the financial statements of an insurer. For purposes of this chapter, workpapers include audit planning documentation, audit programs, permanent files, internal control and electronic data processing questionnaires, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries which are prepared or obtained by the independent certified public accountant in the course of the independent certified public accountant’s audit of the financial statements of an insurer and which support the opinion thereon.

(b) Every insurer required to file an annual audited financial report under this chapter shall require within the engagement letter the agreement of the independent certified public accountant to make available, through the insurer, for review by Department examiners workpapers prepared in the conduct of the audit, as well as communications related to the audit between the independent certified public accountant and the insurer, including the engagement letter, at the offices of the insurer, at the offices of the independent certified public accountant, at the offices of the Department or at another reasonable place designated by the Commissioner. The insurer shall require that the independent certified public accountant retain the audit workpapers and communications for at least 7 years after the period reported on and agree to make a partner or manager available to the Department upon reasonable request.

(c) In the conduct of the periodic review by Department examiners described in subsection (b), photocopies of pertinent audit workpapers may be made and retained by the Department.

(d) Copies of audit workpapers so obtained in the course of review will be considered part of the record of examination of the Commissioner and will be held as confidential records.



§ 147.12 Examinations

(a) The Commissioner will determine the nature, scope and frequency of examinations conducted by Department examiners under the laws relating to the conduct of examinations. Examinations may, but need not, cover all aspects of the assets, condition, affairs and operations of the insurer and may include and be supplemented by audit procedures performed by the independent certified public accountant as provided in this chapter. Scheduling of examinations will take into account matters such as early warning test results, changes in management, results of market conduct examinations and annual audited financial reports. The type of examinations performed by Department examiners will be as follows:

(1) Compliance examinations will consist of a review of the workpapers of the independent certified public accountant defined under § 147.11 (relating to definition, availability, and maintenance of independent certified public accountant workpapers) and a general review of the corporate affairs and insurance operations of the insurer to determine compliance with the Pennsylvania insurance statutes and this title. The examiners may perform alternative or additional examination procedures to supplement those performed by the independent certified public accountant when the examiners determine that the procedures are necessary to verify the financial condition of the insurer.

(2) Limited scope examinations may cover areas such as life reserve valuations, claims analyses and organizational and capital changes and other areas the Commissioner may deem appropriate.

(3) Comprehensive examinations will be performed when the report of the independent certified public accountant as provided for in § 147.8 (relating to scope of audit and report of independent certified public accountant), the notification required by § 147.9 (relating to notification of adverse financial condition), the results of compliance or limited scope examinations, or other circumstances indicate in the judgment of the Commissioner that a complete examination of the condition and affairs of the insurer is necessary.

(b) Upon the completion of each examination described in subsection (a), the examiners appointed by the Commissioner will make a full and true report on the results of the examination. Each report will include a general description of the audit procedures performed by Department examiners and the procedures of the independent certified public accountant which the examiners may have utilized to determine the nature, timing and extent of their examination procedures. The cost of the examination shall be paid by the insurer examined in accordance with the laws and regulations relating to Department examinations.

(c) This chapter does not prohibit, preclude or in any way limit the Commissioner from ordering and conducting, or performing examinations of insurers under the laws and regulations of the Commonwealth and the practices and procedures of the Department.

§ 147.13 Effective Date and Exemption

(a) This chapter applies to all insurers doing business in this Commonwealth.

(b) For those insurers retaining an independent certified public accountant on November 11, 1995, the 7–year period of service referred to in § 147.6(c) (relating to qualifications of independent certified public accountant or other person responsible for rendering the annual audited financial report was first retained or assigned that responsibility. The requirement that an insurer retain the services of a



new independent certified public accountant in order to comply with the 7–year rotation provision in § 147.6(c) shall become effective November 11, 1997.

(c) Foreign or alien insurers having direct premiums written in this Commonwealth less than $1 million in a calendar year and having fewer than 1,000 policyholders or certificateholders of directly written policies in this Commonwealth at the end of that calendar year shall be exempt from this chapter for that year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Foreign insurers having assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1 million or more are not exempt.

(d) Domestic insurers having total admitted assets less than $10 million, direct premium written Nationwide less than $1 million in a calendar year and having fewer than 1,000 policyholders or certificateholders of directly written policies Nationwide at the end of that calendar year are exempt from this chapter for that year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Domestic insurers having total admitted assets greater than $10 million or assumed premiums pursuant to contracts or treaties, or both, of reinsurance of $1 million or more are not exempt.

(e) Insurers domiciled in this Commonwealth and not transacting the business of insurance outside of this Commonwealth having total admitted assets less than $10 million and either direct premium written of less than $1 million in a calendar year or fewer than 1,000 policyholders or certificateholders of directly written policies at the end of that calendar year are exempt from this chapter for that year, unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Insurers having total admitted assets greater than $10 million or assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1 million or more are not exempt.

(f) Foreign or alien insurers filing annual audited financial reports in another state, pursuant to that state’s requirements for annual audited financial reports whose requirements have been found by the Commissioner to be substantially similar to the requirements of this chapter, are exempt from this chapter if the insurer meets the following conditions:

(1) A copy of the annual audited financial report, report of evaluation of accounting procedures and system of internal controls, report on significant deficiencies in internal controls, and the independent certified public accountant’s letter of qualifications which are filed with the other state are filed with the Commissioner in accordance with the filing dates specified in this chapter. Canadian insurers may submit independent certified public accountant’s reports as filed with the Canadian Dominion Department of Insurance.

(2) A copy of a notification of adverse financial condition report filed with the other state is filed with the Commissioner within the time frames specified in § 147.9 (relating to notification of adverse financial condition).

(g) Upon written application of an insurer, the Commissioner may grant an exemption from compliance with this chapter if the Commissioner finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for specified periods. Within 10 days from a denial of the written request of an insurer for an exemption from this chapter, the insurer may request in writing a hearing on its applications for an exemption. Hearings will be held in accordance with 2 Pa.C.S. §§ 501–508 and 701–704 (relating to Administrative Agency Law) and Chapters 56–58 (relating to special rules of administrative practice and procedure; publication of citations and notice of hearings; and objections and procedure for hearings on reports of examinations).



(h) Subsections (c)–(g) do not apply to continuing care providers.

(i) Domestic insurers retaining an independent certified public accountant on November 11, 1995, shall comply with this chapter for the year ending December 31, 1995, and each year thereafter unless the Commissioner permits otherwise.

(j) Foreign insurers shall comply with this chapter for the year ending December 31, 1995, and each year thereafter, unless the Commissioner permits otherwise.

(k) In the case of Canadian and British insurers, the annual audited financial report is defined as the annual statement of total business on the form filed by the insurers with their domiciliary supervision authority, audited by an independent chartered accountant. For these insurers, the letter required in § 147.15 (relating to letter of qualifications of independent certified public accountant) shall state that the independent certified public accountant is aware of the requirements relating to the annual audited financial report filed with the Commissioner under § 147.3 (relating to filing and extensions for filing of annual audited financial reports) and shall affirm that the opinion expressed is in conformity with those requirements.

§ 147.14 Penalties

Failure to file the annual audited financial report and additional statements, letters or reports required by this chapter or failure to comply with § 147.11 (relating to definition, availability and maintenance of independent certified public accountant workpapers) will subject the insurer to the penalties provided by laws.

§ 147.15 Letter of Qualifications of Independent Certified Public Accountant

The independent certified public accountant shall furnish the insurer for inclusion in the filing of the annual audited financial report a letter including the following:

(1) A statement that the certified public accountant is independent with respect to the insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants, Inc., and The C.P.A. Law (63 P.S. §§ 9.1–9.16(b) or similar laws.

(2) A description of the background and experience in general and the experience in audits of insurers of the staff assigned to the engagement and whether each staff person is an independent certified public accountant. This chapter does not prohibit the independent certified public accountant from utilizing staff as the independent certified public accountant deems appropriate when consistent with the standards prescribed by generally accepted auditing standards.

(3) A statement that the independent certified public accountant understands that the annual audited financial report an the independent certified public accountant’s opinion thereon will be filed in compliance with this chapter and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) A statement that the independent certified public accountant consents to the requirements of § 147.11 (relating to definitions, availability and maintenance of independent certified public accountant workpapers) and that the independent certified public accountant consents and agrees to make available for review by the Commissioner, the Commissioner’s designee or Department examiners, the workpapers, as defined in § 147.11.



(5) A representation that the independent certified public accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants, Inc.

(6) A representation that the independent certified public accountant is in compliance with § 147.6 (relating to qualifications of independent certified public accountant).



PUERTO RICO REGULATIONS

Rule XIV-A -- Insurance Companies’ Audits by Independent Certified Public Accountants and Audited Financial Reports

XIV-A Insurance companies’ audits by independent certified public accountants and audited financial reports.

Section 1. Purpose

The purpose of this Rule is to strengthen and complement the surveillance system of the operations and the financial solvency of insurance companies authorized in the Commonwealth of Puerto Rico, as required from the Commissioner of Insurance of Puerto Rico, and in accordance with Section 2.140 of the Insurance Code of Puerto Rico. Insurance companies, as well as other types of business have long recognized that an annual audit by independent authorized public accountants makes good business senses.

Furthermore, because of the lack of personnel needed to perform examinations as frequently as particular circumstances dictate, aggravated by the increasing number of foreign as well as domestic insurers being authorized, makes it, if not indispensable, at least highly desirable that the present system of periodic examinations established by the Commissioner of Insurance be supplemented by annual audits of all domestic insurers performed by independent certified public accountants.

This Rule makes it mandatory that all domestic insurers be examined every year by independent accountants, which procedure is not part of the present system of company examinations, and that audited financial reports be presented by such independent accountants.

This Rule shall not prohibit, preclude, or in any way limit the Commissioner of Insurance, or his designee, from ordering or conducting or performing examinations of the operations, practices, procedures, financial condition, market conduct and other aspects of the insurers under his supervision, in accordance with the Insurance Code and Regulations in force.


“Annual Audited Financial Report” means and includes the financial statements and/or reports specified in Article 4 of this Rule.

“Accountant” and “Independent Certified Public Accountant” mean a certified public accountant or firm of certified public accountants licensed to practice in the Commonwealth of Puerto Rico, and who are members of the College of Certified Public Accountants of Puerto Rico.

“Insurer” means a domestic insurer in accordance with the provisions of Sections 1.030, 1.050 and 3.010 of the Insurance Code of Puerto Rico.

“Insurance Code” means Public Law #77 approved June 19, 1957, as amended, known as the Insurance Code of Puerto Rico.

Section 3. Rule

All authorized domestic insurers shall have an annual audit performed by a certified public accountant and shall file an annual audited financial report with the Office of the Insurance Commissioner, on or before June 30 for the year of operations ending December 31 immediately preceding.



Extensions of the June 30 filing date may be granted by the Commissioner for an additional thirty days period upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

The annual audited financial report shall be considered part of the insurer’s annual statement filing required by Section 3.310 of the Insurance Code; except as to the respective due dates, shall be subject to the penalties provided in said article, and shall include the information indicated in Section 4 of this Rule.


A. Opinion of Independent Certified Public Accountant (See Section 7)

B. Financial Statements (See Section 8)

1. Balance Sheet

2. Statement of gain or loss from operations

3. Statement of changes in financial position

4. Statement of changes in capital paid up, paid in or contributed surplus and unassigned surplus.

5. Notes, footnotes or observations to the financial statements.

C. Report on Evaluation of Internal Control by Independent Certified Public Accountant (See Section 9)

D. Accountants Letter (See Section 10)


All insurers subject to this Rule must, within thirty (30) days after becoming subject thereto, report to the Commissioner in writing, the name and postal address of the independent certified public accountant retained to conduct the annual audits required by this Rule.

Insurer shall notify the Commissioner the engagement of an accountant within thirty (30) days of such appointment if such accountant was not the same one who performed the audit for the immediately preceding year. Such notification shall include a statement by the president, treasurer and chairman of the audit committee (if any), as to whether in the twenty-four (24) months preceding the most recent December 31 there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing procedures which disagreements if not resolved to the satisfaction of the former accountant would have caused him to mention them in his opinion.

The insurer shall also require, in writing, such former accountant to furnish it with a letter addressed to the Commissioner stating whether he agrees with the statements contained in the insurer’s letter to the Commissioner, and the insurer shall send the former accountant’s letter to the Commissioner together with his own.




The Commissioner shall not recognize any person or firm as an independent certified public accountant who is not duly licensed to practice said profession and in good standing under the laws of the Commonwealth of Puerto Rico, and/or who is not a member in good standing of the College of Certified Public Accountants of Puerto Rico.

Except as otherwise provided herein, a certified public accountant shall be recognized as independent as long as he conforms to the standards of his profession, as contained in the in force Code of Ethics issued by the Board of Accountancy of Puerto Rico and by the College of Certified Public Accountants of Puerto Rico, and that he is not an employee of the insurer.

The Commissioner may hold public hearings to determine whether a certified public accountant is qualified under this Rule, whether he is independent, whether an audit performed by him has taken into consideration all pertinent provisions of the Insurance Code or its Regulations, or whether the annual audited financial report on which he has given his opinion presents fairly the financial position and results of operations of the insurer. Considering the evidence presented, the Commissioner may rule that the certified public accountant is not qualified under this Rule, is not independent for purposes of expressing his opinion, did not take into consideration all pertinent provisions of the Insurance Code of Puerto Rico and its Regulations, or that the annual audited financial report on which he gave his opinion did not fairly present the financial position and results of operations of the insurer. After such finding, the Commissioner may require the insurer to replace the accountant.

Section 7. Opinion of Independent Certified Public Accountant

Financial statements filed pursuant to Section 4(B) shall be examined by independent certified public accountants in accordance with generally accepted auditing standards as determined by the College of Certified Public Accountants of Puerto Rico.

The opinion of the independent certified public accountant shall cover all years presented, except that no opinion is required for financial statements or portions thereof prior to December 31, 1979.

The opinion on the financial statements filed pursuant to Section 4(B) shall refer to conformity or non-conformity with accounting principles or practices prescribed or permitted by the Office of the Commissioner of Insurance of Puerto Rico. Insurers shall present the financial statements filed pursuant to this Rule, on the statutory basis of accounting.

With the Commissioner’s prior approval, an insurer may comply with this Rule by filing the requisite reports which have been prepared in accordance with generally accepted accounting principles, provided that the notes to the financial statements include a reconciliation of differences between net income and capital and surplus on the annual statement filed pursuant to Section 3.310 of the Insurance Code of Puerto Rico and comparable totals on the audited financial statements, with a written description of the nature of these differences.

The opinion shall be addressed to the insurer on stationery of the accountant showing the address of remitter, shall bear original manual signatures, shall be dated, and shall have affixed to the original copy the internal revenue stamp required by Law 75 of 1973.

Section 8. Contents of Audited Financial Statements

A. General

In general, and except as otherwise provided herein, the audited financial statements filed pursuant to Section 4(B) should be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and:



1. The financial statements shall be comparative, presenting the amounts as of December 31 of the current year (the one immediately preceding) and the amounts as of December 31 of the previous year (the one previous to the immediately preceding).

2. Amounts may be rounded to the nearest thousand dollars.

3. Supporting schedule, exhibit, part and item references and line numbers may be omitted.

4. Inapplicable captions need not be included.

5. Insignificant amounts may be combined.

6. Notes or observations to the financial statements should be appropriately cross referenced on the face of the statements.

B. Balance Sheet

The balance sheets of the insurer shall be prepared in a form and using language and groupings substantially the same as that contained in the insurer’s annual statement filed with the Commissioner, except as noted in Section 8(A) above.

C. Statement of Gain or Loss from Operations

The statement of gain or loss from operations shall be prepared in a form using language and groupings substantially the same as the income statement contained in the insurer’s annual statement filed with the Commissioner, except as noted in Section 8(A) above.

D. Statement of Changes in Financial Position

The statement of changes in financial position shall be prepared in accordance with Accounting Principles Board Opinion Number 19, except where such opinion conflicts with statutory accounting, and:

1. Purchases of long term securities shall be stated separately, as one item.

2. Sales of long term securities shall be stated separately, as one item.

3. Purchases and sales of short term securities shall be stated net, as one item.

E. Statement of Changes in Capital Paid Up, Gross Paid In and Contributed Surplus and Unassigned Surplus.

Such statement shall be prepared in a suitable format and shall include, as separate items, the information included in the capital and surplus account of the insurer’s annual statement filed with the Commissioner of Insurance. Such statements shall include separate presentations of changes in capital paid up, gross paid in and contributed surplus and unassigned surplus.

F. Notes to Financial Statements

The notes to financial statements shall be those required by generally accepted accounting principles, and shall include:



1. A reconciliation of differences, if any, between the audited financial report and the annual statement of the insurer filed with the Commissioner.

2. A summary of ownership and relationships of the insurer and all affiliated companies.

3. A narrative explanation of all significant intercompany transactions and balances.

Section 9. Report on Evaluation of Internal Control by Independent Certified Public Accountant

In connection with the independent certified public accountant’s examination of the financial statements of the insurer as required by this Rule, he shall report on his evaluation of the internal control of the insurer.

Internal control comprises the plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies.

The auditor should be primarily concerned with accounting controls which comprise the plan of organization and all methods and procedures that are concerned mainly with, and related directly to the safeguarding of assets and reliability of the financial records. They generally include such controls as the systems of authorization and approval, separation of duties concerned with record keeping and accounting reports from those concerned with operations or asset custody, physical controls over assets and internal auditing. If the auditor believes, however, that certain administrative controls may have an important bearing on the reliability of the financial records, he should consider the need for evaluating such controls. Administrative controls comprise the plan or organization and all methods and procedures that are concerned mainly with operational efficiency and adherence to managerial policies and usually relate only indirectly to the financial records.

The accountant’s review of the internal controls and his report thereon shall be in accordance with the auditing standards generally accepted by the College of Certified Public Accountants of Puerto Rico, and may be in the form suggested by Section 640.12 of the Report on Internal Control in the Statement of Auditing Standards and Procedures Number One of the American Institute of Certified Public Accountants.

The insurer shall file the report on internal controls by the independent certified public accountant with the Commissioner. Such reports shall be addressed to the insurer on stationery of the accountant showing the address of issuance, shall bear original manual signatures, shall be dated, and shall have affixed to the original copy the internal revenue stamp required by Law 75 of 1973.

Section 10. Accountant’s Letter

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the audited annual report, a letter stating:

(a) That he is independent with respect to the insurer and conforms to the standards of his profession as contained in the Code of Professional Ethics of the Board of Accountancy of Puerto Rico and the College of Certified Public Accountants of Puerto Rico.

(b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this Rule shall be construed as prohibiting the accountant from utilizing such staff as he deems appropriate where such is consistent with the standards prescribed by generally accepted auditing standards.



(c) That the accountant understands that the annual audited financial report and his opinions thereon will be filed in compliance with Rule XIV-A of the Commissioner of Insurance Regulations.

(d) That the accountant consents to the requirements of Section 13 of this Rule and consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the work papers, as defined by Section 13.

(e) That the accountant is properly licensed by an appropriate state licensing authority, and that he is a member of the College of Certified Public Accountants of Puerto Rico.


Insurers subject to this Rule shall require the independent certified public accountant to immediately notify in writing an officer and all members of the Board of Directors of the insurer of any determination by the independent certified public accountant that the insurer has erroneously established its financial condition in the annual statement to the Commissioner for the year ended December 31 immediately preceding. The insurer shall furnish such notification to the Commissioner within five days of receipt thereof.

If the accountant, subsequent to the date of the audited financial report filed pursuant to this Rule, becomes aware of facts which would have affected his report, he shall be under the obligation to take such action as prescribed by the auditing standards generally accepted by the College of Certified Public Accountants of Puerto Rico.

Section 12. Availability and Maintenance of Working Papers of the Independent Certified Public Accountant

Insurers subject to this Rule shall require the independent certified public accountant to make available for review by the Commissioner or his appointed agent, the working papers prepared in the audit of the insurer which shall include its parent and affiliates, as they relate to the examination of the insurer. The insurer shall require that the accountant retain the audit working papers for a period of not less than five years after the period covered in the report.

The aforementioned reviews by the Commissioner shall be considered investigations and all working papers obtained during the course of such investigations shall be confidential. The insurer shall require that the independent certified public accountant provide photocopies of any of the working papers which the Office of the Commissioner of Insurance considers relevant, which may be retained by the Office.

Working papers, as referred to in this Section, include, but are not limited to, schedules, analyses, reconciliations, abstracts, narrative memoranda, flow charts, copies of company records or other documents prepared or obtained by the accountant and his employees in the conduct of their examinations of the insurer.

Section 13. Examinations by the Commissioner

The Commissioner, at his discretion, shall determine the nature, scope and frequency of examinations to be conducted by his Office, pursuant to Section 2.140 of the Insurance Code. Such examinations may, but need not cover all aspects of the insurer’s assets, condition, affairs and operations and may include and be supplemented by audit procedures performed by independent certified public accountants as herein provided. Scheduling of examinations will take into account such matters as National Association of Insurance Commissioners’ guidelines, early warning test results, changes in management, results of market conduct examinations and audited financial reports.

The cost of all work performed by independent certified public accountants shall be paid by the insurer.



Section 14. Application and Effective Date

This Rule shall apply to all domestic insurers doing business in the Commonwealth of Puerto Rico and shall be effective as provided by Section 2.040(1) of the Insurance Code.

Insurers shall file the annual audited financial report required by this Rule for the year ended December 31, 1979, on or prior to July 31, 1980, and by June 30 of each year thereafter.

Section 15. Exemptions

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this Rule or portions thereof, if the Commissioner determines, upon review of the application, that compliance with this Rule would constitute a financial or organizational hardship upon the insurer or its independent certified public accountant. An exemption may be granted at any time for any specified period. Within ten (10) days from a denial of an insurer’s written request for an exemption from this Rule, such insurer may request in writing a hearing on its application for exemption. Such hearings shall be held in accordance with the procedures established in Chapter 2 of the Insurance Code and the specific rules of the Insurance Regulations.

Insurers having premiums written in Puerto Rico of less than $100,000 in any year or that have less than one thousand policy-holders at the end of any year, shall be exempt from complying with this Rule for such year (unless the Commissioner determines that compliance is necessary for the Commissioner to carry out statutory responsibilities).

Section 16. Severability

If any provision of this Rule or application thereof to any person is held invalid, such invalidity shall not affect other provisions of this Rule and, to that end, the provisions of this Rule are severable.



RHODE ISLAND INSURANCE REGULATION

Insurance Regulation 87

R27-87-001 Authority

This regulation is promulgated pursuant to RIGL Sections 27-12-6 and 42-14-17.

R27-87-002 Purpose

The purpose of this regulation is to improve the Rhode Island Insurance Division’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

Every insurer (as defined in Section 3) shall be subject to this Regulation. Insurers having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this Regulation for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this Regulation if:

A. A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Sections 4, 11 and 12 of this Regulation, respectively (Canadian insurers may submit accountant’s reports as filed with the Canadian Dominion Department of Insurance).

B. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in Section 10 of this Regulation.

This regulation shall not prohibit, preclude or in any way limit the Commissioner from ordering and/or conducting and/or performing examinations of insurers under the rules and regulations of the Rhode Island Division of Insurance and the practices and procedures of the Rhode Island Division of Insurance.

R27-87-003 Definitions

A. “Audited financial report” means and includes those items specified in Section 5 of this Regulation.

B. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.”

C. “Commissioner,” or “Commissioner of Insurance” or “Insurance Commissioner” means the Director of the Department of Business Regulation of this state.

D. “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere



to applicable auditing or professional standards, whether or not resulting in part from knowing or other misrepresentations made by the insurer or its representatives.

E. “Insurer” means any person or legal entity considered to be an insurer by the Division of Insurance for the purpose of this Regulation including but not limited to entities engaged in the business of insurance in accordance with RIGL Chapters 27-1-1 et seq., 27-2-1 et seq., 27-19-1 et seq., 27-20-1 et seq., 27-20.1-1 et seq., 27-20.2-1 et seq., 27-20.3-1 et seq., and 27-41-1 et seq. and such other entities, including surplus lines insurers, authorized to transact the business of insurance in this state.

F. “Section” means, unless otherwise specified herein, the section of this Regulation.

R27-87-004 Filing and Extensions for Filing of Annual Audited Financial Reports



R27-87-005 Contents of Annual Audited Financial Report

The annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.


A. Report of independent certified public accountant;

B. Balance sheet reporting admitted assets, liabilities, capital and surplus;

C. Statement of operations;

D. Statement of cash flows;

E. Statement of changes in capital and surplus;

F. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to RIGL § 27-12-1 with a written description of the nature of these differences; and

G. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially similar to those relevant sections of the Annual Statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately



preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted).

R27-87-006 Designation of Independent Certified Public Accountant

Each insurer required by this Regulation to file an annual Audited Financial Report must within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this regulation as the “accountant”) retained to conduct the annual audit set forth in this Regulation. Insurers not retaining an Accountant on the effective date of this Regulation shall register the name and address of their retained Accountant not less than six (6) months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the Accountant, and file a copy with the Commissioner stating that the Accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he or she may believe appropriate.

If an Accountant who was the Accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former Accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this Section include both those resolved to the former accountant’s satisfaction and those not resolved to the former Accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former Accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish such responsive letter from the former Accountant to the Commissioner together with its own.

R27-87-007 Qualifications of Independent Certified Public Accountant

A. The Commissioner shall not recognize any person or firm as a qualified Independent Certified Public Accountant if the person or firm:

(1) Is not in good standing with the American Institute of CPAs and in all states in which the Accountant is licensed to practice, or, for a Canadian or British company that is not a chartered accountant; or

(2) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as “indemnification”) with respect to the audit of the insurer.

B. Except as otherwise provided herein, the Commissioner shall recognize an Independent Certified Public Accountant as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Rhode Island Board of Public Accountancy, or similar code.



C. A qualified Independent Certified Public Accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under RIGL §§ 27-14.3-1 et seq. and 27-14.2-1 et seq., the mediation or arbitration provisions shall operate at the option of the statutory successor.

D. No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:




The requirements of this paragraph shall become effective two (2) years after the enactment of this Regulation.

E. The Commissioner shall not recognize as a qualified Independent Certified Public Accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by, any natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this Regulation; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this Regulation.

F. The Commissioner of Insurance may, in accordance with the requirements of the Administrative Procedures Act, RIGL Chapter 42-35-1 et seq. hold a hearing to determine whether a Certified Public Accountant is qualified and, considering the evidence presented, may rule that the Accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual Audited Financial Report made pursuant to this Regulation and require the insurer to replace the Accountant with another whose relationship with the insurer is qualified within the meaning of this Regulation.

R27-87-008 Consolidated or Combined Audits

An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilize a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:



A. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet;

B. Amounts for each insurer subject to this section shall be stated separately;


D. Explanations of consolidating and eliminating entries shall be included; and


R27-87-009 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 of this Regulation shall be examined by an Independent Certified Public Accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the Independent Certified Public Accountant deems necessary.

R27-87-010 Notification of Adverse Financial Condition

The insurer required to furnish the annual Audited Financial Report shall require the Independent Certified Public Accountant to report, in writing, within five (5) business days to the board of directors or its audit committee any determination by the Independent Certified Public Accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Rhode Island Insurance Laws as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the Independent Certified Public Accountant making the report with evidence of the report being furnished to the Commissioner. If the Independent Certified Public Accountant fails to receive such evidence within the required five (5) business day period, the Independent Certified Public Accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

No Independent Certified Public Accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.

If the Accountant, subsequent to the date of the Audited Financial Report filed pursuant to this Regulation, becomes aware of facts which might have affected his or her report, the Department notes the obligation of the Accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

R27-87-011 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the Accountant describing significant deficiencies in the insurer’s internal control structure noted by the Accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the Accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by



the insurer with the Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

R27-87-012 Accountant’s Letter of Qualifications

The Accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

A. That the Accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Rhode Island Board of Public Accountancy, or similar code;

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an Independent Certified Public Accountant. Nothing within this Regulation shall be construed as prohibiting the Accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

C. That the Accountant understands the annual audited financial report and his or her opinion thereon will be filed in compliance with this Regulation and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

D. That the Accountant consents to the requirements of Section 13 of this Regulation and that the accountant consents and agrees to make available for review by the Commissioner, his or her designee or his or her appointed agent, the workpapers, as defined in Section 13;

E. A representation that the Accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and

F. A representation that the Accountant is in compliance with the requirements of Section 7 of this Regulation.

R27-87-013 Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by the Independent Certified Public Accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his or her examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the Independent Certified Public Accountant in the course of his or her examination of the financial statements of an insurer and which supports his or her opinion thereof.

Every insurer required to file an Audited Financial Report pursuant to this Regulation, shall require the Accountant to make available for review by Department examiners, all workpapers prepared in the conduct of his or her examination and any communications related to the audit between the Accountant and the insurer, at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the Accountant retain the audit workpapers and communications until the Insurance Department has filed a Report on the Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.




R27-87-014 Exemptions and Effective Dates

Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this Regulation if the Commissioner finds, upon review of the application, that compliance with this Regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this Regulation, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Administrative Procedures Act, RIGL Chapter 42-35-01 et seq.

All domestic and foreign insurers shall comply with this Regulation for the year ending December 31, 1996 and each year thereafter unless the Commissioner permits otherwise.

R27-87-015 Canadian and British Companies


B. For such insurers, the letter required in Section 6 of this Regulation shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Section 4 of this Regulation and shall affirm that the opinion expressed is in conformity with such requirements.

R27-87-016 Severability Provision

If any section, term or provision of this Regulation should be adjudged invalid for any reason, that judgment should not effect, impair or invalidate any remaining section, term, or provision, which shall remain in full force and effect.


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS SOUTH CAROLINA

SOUTH CAROLINA STATUTES

Title 38, Chapter 13

Chapter 13, section 80 of Title 38 (Annual financial statement) of the South Carolina Statutes states in part:

“Every insurer annually shall file with the department by March first, in the form and detail the Director or his designee prescribes, a statement showing the business standing and financial condition of the insurer on December thirty-first of the preceding year. This statement must conform substantially to the form of statement adopted by the National Association of Insurance Commissioners. Unless the Director or his designee provides otherwise, the annual statement is to be prepared in accordance with the Annual Statement Instructions and the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners.”



SOUTH DAKOTA STATUTES

TITLE 58, Chapter 58-43 -- Independent Audit of Insurers

58-43-1 "Accountant"

For the purposes of this chapter, an accountant is an independent certified public accountant or accounting firm in good standing with the American institute of certified public accountants and in all states in which the accountant or firm is licensed to practice. For Canadian and British companies, an accountant is a Canadian-chartered or British-chartered accountant.

58-43-2 Filing of Audited Financial Statements

Every insurer having direct premiums written in this state of more than one million dollars in any calendar year and more than one thousand policyholders or certificate holders of directly written policies nationwide at the end of a calendar year is required to have an annual audit by an accountant of the financial statements reporting the financial position and the results of operations. This chapter also applies to insurers having assumed premiums pursuant to contracts or treaties of reinsurance of one million dollars or more. The Director may require insurers with less than one million dollars in direct premiums and less than one thousand policyholders or certificate holders to have independent audits to determine the financial status of the insurer.

The insurer shall file an audited financial report with the Director on or before June first for the year ended December thirty-first immediately preceding. The Director may require an insurer to file an audited financial report earlier than June first with ninety days advance notice to the insurer.

Extensions of the June first filing date may be granted by the Director for thirty-day periods upon showing by the insurer and its accountant to the Director that there is good cause for an extension. The request for extension shall be submitted in writing to the Director not less than ten days prior to the due date in sufficient detail to permit the Director to make an informed decision.

58-43-3 Foreign or Alien Insurers’ Audited Financial Reports

Foreign or alien insurers, filing audited financial reports in another state which report has been found by the Director to be substantially similar to the requirements of § 58-13-4, are exempt if:

(1) A copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with the other state are filed with the Director in accordance with the filing dates specified in § 58-43-2, 58-43-14 and 58-43-15. Canadian insurers may submit accountants’ reports as filed with the Canadian dominion department of insurance;

(2) A copy of any notification of adverse financial condition report filed with that other state is filed with the Director within the time specified in § 58-43-12.

This section does not prohibit, preclude or in any way limit the Director of insurance from ordering or conducting or performing examinations of insurers under this Title.

58-43-4 Contents Of Annual Audited Financial Report

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended. The audit shall reflect the statutory accounting practices prescribed, or otherwise permitted, by the division. The report shall include the following:



(1) Report of accountant;


(3) Statement of operations;


(5) Statement of changes in capital and surplus; and

(6) Notes to financial statements. Any notes to financial statements shall be prepared in accordance with the Annual Statement Instructions Manual and the Accounting Practices and Procedures Manual prescribed by the National Association of Insurance Commissioners as promulgated by rule by the director pursuant to chapter 1-26 and shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to § 58-6-75 with a written description of the nature of these differences.

Financial statements furnished pursuant to § 58-43-4 and 58-43-5 shall be reviewed by an accountant. The audit of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the accountant considers necessary.

58-43-5 Preparation Of Annual Audited Financial Report

The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement filed pursuant to § 58-6-75 and the financial statement shall be comparative, presenting the amounts as of December thirty-first of the current year and the amounts as of the immediately preceding December thirty-first. In the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

58-43-6 Designation Of Independent Certified Accountant

Insurers shall notify the Director in writing of the name and address of their retained accountant not less than six months before the date when the first audited financial report is to be filed.

The insurer shall obtain a letter from the accountant, and file a copy with the Director, stating that the accountant is aware of the laws of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or permitted and specify any exceptions.

58-43-7 Notice Of Termination Of Accountant

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall mail notification to the Director within five business days of the dismissal or resignation. The insurer shall mail the Director a separate letter within ten business days of the above notification stating whether in the twenty-four months preceding this dismissal or resignation there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion.



58-43-8 Report Of Disagreements

The disagreements required in § 58-43-7 to be reported include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, such as, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall request in writing the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree. The insurer shall furnish the responsive letter from the former accountant to the Director together with its own. The accountant shall also furnish a copy of the responsive letter to the Director.

58-43-9 Qualifications Of Independent Certified Public Accountant

An accountant shall be recognized as qualified as long as he conforms to the standards of his profession, as contained in the code of professional ethics of the American institute of certified public accountants and the requirements of chapter 36-20A and rules promulgated pursuant to that chapter.

58-43-10 Terms Of Accountants

No individual responsible for rendering a report pursuant to this chapter may act in that capacity for more than seven consecutive years. Following any period of service the accountant shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Director for relief from the above rotation requirements for good cause. The Director may consider the following factors in determining if the relief should be granted:




The requirements of this section are effective on July 1, 1993.

58-43-11 Grounds For Disqualification Of Accountant Or Financial Reports

The Director may not recognize as an accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 -- 1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this chapter; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this chapter.



58-43-12 Hearings On Disqualification

An accountant which has been disqualified or any firm which has had an accountant disqualified by the Director may request a hearing on the disqualification. The Director may, as a result of the hearing, require the insurer to replace the accountant with another qualified accountant.

58-43-13 Consolidated or Combined Audits

An insurer may make written application to the Director for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report as follows:



(3) Noninsurance operations may be shown on the worksheet on a combined or individual basis;




An insurer shall require the accountant to report, in writing, within five business days to the Board of Directors or its audit committee any determination by the accountant that the insurer has materially misstated its financial condition as reported to the Director as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of § 58-5-21 and 58-6-23 as of that date. An insurer who has received a report pursuant to this section shall forward a copy of the report to the Director within five business days of receipt of the report and shall provide the accountant making the report with evidence of the report being furnished to the Director. If the accountant fails to receive the evidence within the required five business-day period, the accountant shall send or deliver to the Director a copy of its report within the next five business days.

No accountant is liable in any manner to any person for any statement made in connection with this section if the statement is made in good faith.

58-43-15 Accountant’s Duty to Act

If the accountant, subsequent to the date of the audited financial report filed pursuant to this chapter becomes aware of facts which might affect his report, the accountant shall take the action prescribed in volume 1, section AU 561 of the professional standards of the American institute of certified public accountants.

58-43-16 Report On Significant Deficiencies In Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Director with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, communication of internal control structure matters noted in an audit (AU section 325 of the professional standards of the American institute of certified public accountants) requires an



accountant to communicate significant deficiencies or “reportable conditions” noted during a financial statement audit to the appropriate parties within an entity. No report may be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the division within sixty days after the filing of the annual audited financial statements. An insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report. If the insurer does not implement the remedial actions it has outlined within one year from the filing of the report, it is subject to the sanctions of § 58-43-23.

58-43-17 Accountant’s Letter Of Qualifications

The accountant shall furnish the insurer for inclusion in the filing of the annual audited financial report a letter stating:

(1) That the accountant is independent with respect to the insurer and conforms to the standards of his profession as contained in the code of professional ethics and pronouncements of the American institute of certified public accountants and to chapter 36-20A and rules promulgated under the chapter;

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing in this section prohibits the accountant from utilizing the staff as he deems appropriate if such use is consistent with the standards prescribed by generally accepted auditing standards;

(3) That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this chapter and that the Director will be relying on this information in the monitoring and regulation of the financial position of insurers;

(4) That the accountant consents to the requirements of § 58-43-18 and 58-43-19 and that the accountant consents and agrees to make available for review by the Director, his designee or his appointed agent, the workpapers, as defined in § 58-43-18 and 58-43-19;

(5) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American institute of certified public accountants;

(6) A representation that the accountant is in compliance with the requirements of § 58-43-9 to 58-43-12, inclusive, of this chapter.

58-43-18 Definition of CPA Workpapers

Workpapers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the accountant in the course of his examination of the financial statements of an insurer and which support his opinion.

58-43-19 Availability And Maintenance of CPA Workpapers

The insurer and the accountant shall make available for review by the division or its examiners, all workpapers prepared in the conduct of his audit and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the division or at any other reasonable place designated by the Director. The accountant shall retain the audit workpapers and communications until the division has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report.



In the conduct of the division’s review, the division may copy any audit workpapers and may retain them. The reviews by the division examiners shall be considered investigations and all working papers and communications obtained during the course of the investigations shall be afforded the same confidentiality as other examination workpapers generated by the division under chapter 58-3.

58-43-20 Exemptions

Upon written application of an insurer, the Director may grant an exemption from compliance with this chapter if the Director finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for any specified period. Within ten days from a denial of an insurer’s written request for an exemption from this rule, the insurer may request in writing a hearing on its application for an exemption.

58-43-21 Effective Date

Domestic insurers shall comply with this chapter for the year ending December 31, 1993, and each year thereafter unless the Director permits otherwise.

Foreign insurers shall comply with this chapter for the year ending December 31, 1994, and each year thereafter unless the Director permits otherwise.

58-43-22 Canadian and British Companies

In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by the companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

For these insurers, the letter required in § 58-43-6 and 58-43-7 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Director pursuant to § 58-43-4 and shall affirm that the opinion expressed is in conformity with the requirements.

58-43-23 Penalties for Violations

Failure of an insurer subject to this chapter to comply with this chapter may result in a fine of not more than twenty-five thousand dollars for each violation or suspension of not more than one year or revocation of the certificate of authority.

58-43-24 Director’s Authority

The Director may promulgate rules, pursuant to chapter 1-26, regarding the filing and form of the audited annual financial report, qualifications and waiver of any requirements of the accountant, good cause, consolidated and combined audits, internal control reports, workpapers and exemptions from the requirements of this chapter.

58-43-25 Applicability of Provisions

This chapter applies to all persons doing insurance business notwithstanding any provision exempting them from the insurance laws of this Title.



TENNESSEE STATUTES

TITLE 56 – Insurance Chapter 1 – Department of Commerce and Insurance

Part 5. – Annual Statements

56-1-501 (Filing of Statement) States in Part:

(h) (1) The commissioner is authorized to promulgate rules to require that all companies authorized to do business in this state file audited financial reports by independent certified public accountants annually, on or before June 1 for the year ended December 31 immediately preceding.

(2) Any determination by the independent certified public accountant that an insurer has materially misstated its financial condition as reported to the commissioner or that an insurer does not meet the minimum capital and surplus requirements of this title shall be reported as set out in the rules promulgated pursuant to this section. No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with this report of adverse financial condition if such statement is made in good faith in compliance with this section and the rules promulgated pursuant to this section.



TENNESSEE RULEMAKING HEARING RULES

Tennessee Department Of Commerce And Insurance Chapter 0780-1-65 -- Annual Audited Financial Reports

0780-1–65–.01 Authority

This chapter is promulgated by the Commissioner of the Department of Commerce and Insurance pursuant to Tennessee Code Annotated Sections 56–1–501(h) and 56–2–301.

0780–1–65–.02 Purpose and Scope

(1) The purpose of this chapter is to improve the Tennessee Department of Commerce and Insurance’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(2) Every insurer (as defined in Rule 0780–1–65–.03) shall be subject to this chapter. Insurers having direct premiums written in this state of less than one million dollars ($1,000,000) in any calendar year and less than one thousand (1,000) policyholders or nationwide at the end of such calendar year shall be exempt from this chapter for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of one million dollars ($1,000,000) or more will not be so exempt.

(3) Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this chapter if:

(a) A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in Rules 0780–1–65–.04, .11 and .12, respectively. (Canadian insurers may submit accountants reports as filed with the Canadian Dominion Department of Insurance.)

(b) A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in Rule 0780-1-65-.10

(4) This chapter shall not prohibit, preclude or in any way limit the Commissioner of the Department of Commerce and Insurance from ordering and/or conducting and/or performing examinations of insurers under the insurance laws and rules and regulations of the Tennessee Department of Commerce and Insurance and the practices and procedures of the Tennessee Department of Commerce and Insurance.

0780–1-65–.03 Definitions

(1) “Audited financial report” means and includes those items specified in Rule 0780-1-65-.05.

(2) “Accountant” and “Independent Certified Public Accountant” means and independent certified public accountant or accounting firm in good standing with the American Institute of CPAs and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian–chartered or British–chartered accountant.



(3) “Insurer” means an insurance company as defined in Tennessee Code Annotated Section 56–1–102 and authorized to do business under the provisions of Tennessee Code Annotated, Title 56, Chapters 2, 13, 15–21, 23–31, 35 and 45.

0780–1–65–.04 Filing and Extensions for Filing of Annual Audited Financial Reports


(2) Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon a showing by the insurer and its independent certified public accountant the reasons for requesting such extension and a determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

0780-1-65-.05 Contents of Annual Audited Financial Report

(1) The Annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

(2) The annual Audited Financial Report shall include the following:

(a) Report of an independent certified public accountant.

(b) Balance sheet reporting admitted assets, liabilities, capital and surplus.




(f) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and any other notes required by generally accepted accounting principles and shall also include:

1. A reconciliation of differences, if any, between the audited statutory financial statements and the Annual Statement filed pursuant to Tennessee Code Annotate Section 56-1-501(b), with a written description of the nature of these differences.

2. A summary of ownership and relationships of the insurer and all affiliated companies.

(g) The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the Annual Statement of the insurers filed with the Commissioner and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the



amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report the comparative data may be omitted).

0780–1–65–.06 Designation of Independent Certified Public Accountant to Conduct Audit

(1) Each insurer required by this chapter to file an annual audited financial report must, within sixty (60) days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to in this chapter as the “accountant”) retained to conduct the annual audit set forth in this chapter. Insurers not retaining an independent certified public accountant on the effective date of this chapter shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Insurance Code and the Chapters and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he may believe appropriate.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five (5) business days notify the Department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty–four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connections with his opinion. The disagreements required to be reported in response to this paragraph include both those resolved to the former accountant’s satisfaction. Disagreements contemplated by this paragraph are those that occur at the decision–making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

0780–1–65–.07 Qualifications of Independent Certified Public Accountant

(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of CPAs and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(2) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Tennessee Board of Public Accountancy, or similar code.

(3) No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from



acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:




The requirements of this paragraph shall become effective two (2) years after the effective date of this chapter.



(b) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this chapter; or

(c) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this chapter.

(5) The Commissioner of Commerce and Insurance, may hold a hearing in accordance with the procedures set out in Tennessee Code Annotated Title 4, Chapter 5, Part 3, to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual Audited Financial Report made pursuant to this chapter and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this chapter.

0780–1–65–.08 Consolidated or Combined Audits


(a) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

(b) Amounts for each insurer subject to this paragraph shall be stated separately.

(c) Noninsurance operations may be shown on the worksheet on a combined or individual basis.




(e) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

0780–1–65–.09 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Rule 0780–1–65–.05 hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

0789–1–65–.10 Notification of Adverse Financial Condition

(1) The insurer required to furnish the annual Audited Financial Report shall require the independent certified public accountant to report, in writing, within five (5) business days of delivery of the audit to the board of directors or its audit committee or to the insurer any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the Tennessee Insurance Statute as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

(2) No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.

(3) If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this chapter, becomes aware of facts which might have affected his report, the Department notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

0780–1–65–.11 Report on Significant Deficiencies in Internal Controls

In addition to the annual financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communications of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants), requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.



0780–1–65–.12 Accountant’s Letter of Qualifications


(a) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Tennessee Board of Public Accountancy, or similar uniformly accepted code.

(b) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this chapter shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(c) That the accountant understands that the annual audited financial report and his opinion thereon will be filed in compliance with this chapter and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(d) That the accountant consents to the requirements of Rule 0780–65–1–.13 and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in Rule 0780–1–65–.13.

(e) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(f) A representation that the accountant is in compliance with the requirements of Rule 0780–1–65–.07 of this chapter.

0780–1–65–.13 Definition, Availability and Maintenance of CPA Workpapers

(1) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion thereof.

(2) Every insurer required to file an Audited Financial Report pursuant to this chapter shall require the accountant to make available for review by Department examiners all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer at the offices of the insurer, at the Insurance Department or at any other reasonable place designated by the Commissioner. The insurer shall require that the Accountant retain the audit workpapers and communications until the Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

(3) In the conduct of the aforementioned periodic review by the Department examiners it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Department. Such reviews by the Department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same



confidentiality as other examination workpapers generated by the Department under applicable Tennessee law.

0780–1–65–.14 Exemptions and Effective Dates

(1) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this chapter if the Commissioner finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this chapter, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with Tennessee Code Annotated Title 4, Chapter 5, Part 3 of the Uniform Administrative Procedures Act.

(2) Domestic insurers shall comply with this chapter for the year ending December 31, 1995 and each year thereafter unless the Commissioner permits otherwise.

(3) Foreign insurers shall comply with this Chapter for the year ending December 31, 1995 and each year thereafter, unless the Commissioner permits otherwise.

0780–1–65–.15 Canadian and British Companies

(1) In the case of Canadian and British insurers the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

(2) For such insurers, the letter required in Rule 0780–1–65–.06 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to Rule 0780–1–65–.04 and shall affirm that the opinion expressed is in conformity with such requirements.

0780–1–65–.16 Severability Provision

If any section or portion of a section of this chapter or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the chapter or the applicability of such provision to other persons or circumstances shall not be affected thereby.



TEXAS STATUTES

Chapter One, Article 1.15A Independent Audit of Financial Statement

Sec. 1. Purpose

The purpose of this article is to require an annual examination by an independent certified public accountant of the financial statements reporting the financial condition and the results of operations of each insurer.

Sec. 2. Application

This article applies to each insurer except an insurer exempt under Section 4, 6, or 7 of this article.

Sect. 3. Definitions

In this article:

(1) “Accountant” means an independent certified public accountant or accounting firm that meets the requirements of Section 12 of this article.

(2) “Affiliate” has the meaning assigned by Subsection (a) of Section 2 of Article 21.49- 1 of this code.

(3) “Board” means the State Board of Insurance.

(4) “Commissioner” means the Commissioner of insurance.

(5) “Insurer” means an insurer authorized to do business under the law of this state and includes life, health, and accident insurance companies, fire and marine companies, general casualty companies, title insurance companies, fraternal benefit societies, mutual life insurance companies, local mutual aid associations, statewide mutual assessment companies, mutual insurance companies other than life, farm mutual insurance companies, county mutual insurance companies, Lloyd’s plans, reciprocal and interinsurance exchanges, group hospital service corporations, health maintenance organizations, stipulated premium insurance companies, and nonprofit legal services corporations.

(6) “Subsidiary” has the meaning assigned by Section 2 of Article 21.49- 1 of this code.

Sec. 4. Exemption

(a) Except as provided by Subsections (b) and (c) of this section, an insurer otherwise subject to this article that has less than $1 million in direct premiums written in this state during a calendar year, in lieu of the annual examination required by this article for that calendar year, may submit an affidavit under oath of an officer of the insurer that specifies the amount of direct premiums written in this state, and such insurer shall be exempt from the audit required by this article.

(b) The Commissioner may require an insurer that is exempt under Subsection (a) of this section to comply with this article if the Commissioner finds that the insurer’s compliance is necessary for the Commissioner to fulfill the Commissioner’s statutory responsibilities; provided that this subsection shall not apply to any fraternal benefit society qualifying for exemption under Subsection (a) of this section which has no direct premiums written in this state for accident and health insurance during a calendar year.



(c) An insurer that has assumed premiums of $1 million or more under reinsurance agreements is not exempt under Subsection (a) of this section.

Sec. 5. Deleted. Acts 1991, ch. 242, § 11.02

Sec. 6. Exemption for Insurers Filing Audits in Another State

(a) A foreign or alien insurer that files an audited financial report in another state, pursuant to that state’s requirement for audited financial reports, may be exempt from filing a report under this article if the Commissioner finds that the other state’s requirements are substantially similar to the requirements in this article.

(b) A copy of the audited financial report, the report on significant deficiencies in internal controls, and the accountant’s letter of qualifications filed with the other state must be filed with the Commissioner in accordance with the filing dates provided by Sections 9 and 16 of this article.

(c) A copy of a notification of adverse financial conditions report filed with the other state by a person exempt under this section must be filed with the Commissioner within the time provided by Section 15 of this article.

Sec. 7. Financial Hardship Exemption

(a) An insurer otherwise subject to this article and not eligible for an exemption under Section 4 or 6 of this article may apply to the Commissioner for a financial hardship exemption.

(b) Except as provided by Subsection (c) of this section, the Commissioner may grant an exemption under this section if the Commissioner finds, after review of the application, that compliance with this rule would constitute a severe financial or organizational hardship on the insurer. An exemption may be granted at any time and from time to time for a specified period or periods.

(c) The Commissioner may not grant an exemption under this section if the exemption diminishes the department’s ability to monitor the financial condition of the insurer and may not grant an exemption to an insurer that:

(1) has been placed under supervision, conservatorship, or receivership during the five-year period immediately preceding the date on which application for the exemption is made;

(2) has undergone a change in control, as defined by Section 2, Article 21.49- 1 of this code during the five-year period immediately preceding the date on which application for the exemption is made;

(3) has been identified by the department as a troubled insurer;

(4) has been subject to a significant number of complaints, as determined by the Commissioner, during the five-year period immediately preceding the date on which application for the exemption is made;

(5) has been or is the subject of a disciplinary action by the board; or

(6) is not in compliance with any law or any rule adopted by the board or Commissioner.

(d) An insurer that is aggrieved by a determination of the Commissioner under this section may appeal that determination under Article 1.04 of this code.



Sec. 8. Board’s Authority

This article does not prohibit, preclude, or limit the board from ordering, conducting, or performing an examination of any insurer under this code or the board’s rules.

Sec. 9. Filing and Extensions for Filing of Annual Audited Financial Reports

(a) Each insurer shall have an annual audit by an accountant and shall file an audited financial report for the preceding calendar year with the Commissioner on or before June 30 of each year.

(b) Extension of the filing date for the audited financial report may be granted by the Commissioner for 30-day periods on a showing by the insurer and its accountant of reasons for requesting the extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing before the 10th day preceding the date the report is due to be filed and must include sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

(c) The Commissioner may require an insurer to file the audited financial report on a date before June 30 of a particular year if the Commissioner notifies the insurer of the date not later that the 90th day before the date on which the report is to be filed.

(d) If the insurer fails to comply with this article, the Commissioner shall order the audit performed by an independent qualified certified public accountant and assess against the insurer the cost of auditing the insurer’s financial statement under this article, and the insurer shall pay the amount of the assessment to the Commissioner not later than the 30th day after the date the Commissioner issues the notice of assessment to the insurer. Money collected under this section shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund for the use of the board and the department for the purpose of paying the expenses incurred under the article.

Sec. 10. Contents of Audited Financial Report

(a) The audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of the insurer’s operations, changes in financial position, and changes in capital and surplus for that year in conformity with statutory accounting practices prescribed or otherwise permitted by the insurance regulator in the state of domicile.

(b) The audited financial report must include the following:

(1) the report of an accountant;

(2) a balance sheet that reports admitted assets, liabilities, capital, and surplus;

(3) a statement of gain or loss from operations;

(4) a statement of cash flows;

(5) a statement of changes in capital and surplus;

(6) any notes to financial statements; and

(7) supplementary data and information including any additional data or information required by the Commissioner.



(c) The notes to the financial statements required by Subdivision (6) of Subsection (b) of this section must include:

(1) a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed pursuant to this code with a written description of the nature of these differences;

(2) any notes required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions or by generally accepted accounting principles; and

(3) a summary of the ownership of the insurer and the relationship of the insurer to any affiliated company.

(d) The financial statements included in the audited financial report must be prepared in a form and using language and groupings substantially the same as the relevant sections of the insurer’s annual statement filed with the Commissioner. Except in the first year in which an insurer is required to file an audited financial report, the financial statements also must be comparative, presenting the amounts as of December 31 of the reported year and the amounts as of December 31 of the preceding year.

(e) Insurers required to be examined under Section 2 of this article who did not retain an independent certified public accountant to perform an annual examination for the previous year shall not be required to include the following reports covered by the accountant’s opinion for the first year, although such statements shall be presented and labeled unaudited:



(3) Statements of changes in capital and surplus.

All other reports described in Section 9 must be included. For the succeeding year and each year thereafter, such insurers shall file with the Commissioner all reports required by this article.

(f) The audited financial report must also include information required by the department to conduct the examination of the insurer under Article 1.15 of this code. The Commissioner shall adopt rules governing the information to be included in the report under this subsection.

Sec. 10A. Canadian or British Insurers

(a) In lieu of the audited financial report required under Section 9 of this article, an insurer domiciled in Canada or the United Kingdom may file its annual statement of total business on the form filed by the company with the appropriate regulatory authority in the country of domicile. The statement must be audited by an independent accountant chartered in the country of domicile.

(b) The chartered accountant shall register with the Commissioner under Section 11(a) of this article, and the registration must be accompanied by a statement, signed by the accountant, indicating that the accountant is aware of the requirements of this article and affirming that the accountant will express the accountant’s opinion in conformity with those requirements.



Sec. 11. Designation of Accountant

(a) Each insurer must register with the Commissioner the name and address of the accountant retained to prepare an audited financial report required by this article. The registration must be made in writing not later than December 31 of the calendar year to be covered by the audited financial report.

(b) The registration must be accompanied by a statement signed by the accountant indicating that the accountant is aware of the requirements of this article, and of the rules and regulations of the insurance department of the insurer’s state of domicile that relate to accounting and financial matters and affirming that the accountant will express the accountant’s opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying any exceptions the accountant believes are appropriate.

(c) The Commissioner may not accept an audited financial report from an insurer that is prepared by an accountant that is not registered under this section.

(d) The Commissioner may not accept registration under this section for a person who does not comply with Section 12 of this article and with the other requirements of this article.

Sec. 12. Qualifications of Accountant

(a) Except as provided by Subsections (b) and (c) of this section, the Commissioner shall accept an audited financial report from an accountant who is an independent certified public accountant in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant or firm is licensed to practice and who conforms to the Code of Professional Ethics of the American Institute of Certified Public Accountants and to the rules and regulations and Code of Ethics and Rules of Professional Conduct of the Texas State Board of Public Accountancy or a similar code. In the case of an insurer domiciled in Canada, the Commissioner shall accept an audited financial report from an accountant chartered in Canada, and, in the case of an insurer domiciled in Great Britain, the Commissioner shall accept an audited financial report from an accountant chartered in Great Britain.

(b) A partner or other person responsible for rendering a report for an insurer for seven consecutive years may not render a report for that insurer, or any of the subsidiaries or affiliates of the insurer that are engaged in the business of insurance, during the two years following the seventh year. The Commissioner may determine that the limitation in this subsection does not apply to the accountant for a particular insurer if the insurer demonstrates, to the satisfaction of the Commissioner, that its application to the insurer would be unfair because of unusual circumstances. In making the determination, the Commissioner may consider:

(1) the number of partners or individuals employed by the accountant, the expertise of the partners or individuals employed by the accountant, or the number of insurance clients of the accountant;

(2) the premium volume of the insurer; and

(3) the number of jurisdictions in which the insurer transacts business.

(c) The Commissioner may not accept an audited financial report prepared in whole or in part by an individual who the Commissioner finds:



(1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. Sections 1961 through 1968), or any state or federal criminal offense involving dishonest conduct;

(2) has violated the insurance laws of this state with respect to any report filed under this article; or

(3) has demonstrated a pattern or practice of failing to detect or disclose material information in reports filed under this article.

(d) The Commissioner may hold a hearing to determine if an accountant is qualified and independent and, considering the evidence presented, may rule that the accountant is not qualified and independent for purposes of expressing an opinion on the financial statements in the audited financial report filed under this article.

(e) If the Commissioner rules that an accountant is not qualified and independent, the Commissioner shall issue an order directing the insurer to replace the accountant with a qualified and independent accountant.

Sec. 12A. Resignation or Dismissal of Accountant

(a) If the accountant who signed an audited financial report resigns as accountant for the insurer or is dismissed by the insurer after the report is filed, the insurer shall notify the department not later than the fifth business day after the date of resignation or dismissal.

(b) Not later than the 10th business day after the insurer gives the notification required by Subsection (a) of this section, the insurer shall file a written statement with the Commissioner advising the Commissioner of any disagreements between the accountant and personnel of the insurer responsible for presentation of its financial statements relating to accounting principles or practices, financial statement disclosure, or auditing scope or procedures that occurred during the 24-month period immediately preceding the date of resignation or dismissal and that, if not resolved to the satisfaction of the accountant, would have caused the accountant to note the disagreement in connection with the audited financial report. The statement must include both disagreements that were resolved to the accountant’s satisfaction and those that were not resolved to the accountant’s satisfaction.

(c) The insurer shall file with the statement required under Subsection (b) of this section a letter signed by the accountant stating whether the accountant agrees with the insurer’s statement and, if not, stating the reasons why the accountant does not agree. If the accountant is unwilling or unable to provide the letter, the insurer shall file with the Commissioner a copy of a written request to the accountant for the letter.

Sec. 13. Consolidated or Combined Audits

(a) An insurer may make written application to the Commissioner for approval to file audited combined or consolidated financial statements instead of separate annual audited financial reports if the insurer is part of a group of insurance companies that uses a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. The application for approval must be filed on or before December 31 of the calendar year for which the combined or consolidated audited financial statements are to be filed.



(b) An insurer that receives approval from the Commissioner under Subsection (a) of this section shall file a columnar consolidating or combining worksheet for consolidated or combined financial statements that must include the following:

(1) amounts shown on the consolidated or combined audited financial statements;

(2) amounts for each insurer stated separately;

(3) noninsurance operations shown on a combined or individual basis;

(4) explanations of consolidating and eliminating entries; and

(5) reconciliation of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the insurers’ annual statements.

(c) An insurer who does not receive approval from the Commissioner to file an audited combined or consolidated financial statements for the insurer and any of its subsidiaries or affiliates shall file a separate audited financial report.

Sec. 14. Scope of Accountant’s Examination and Report

(a) The financial reports furnished under Section 8 of this article must be examined by an accountant.

(b) The examination of an insurer’s financial reports shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners.

Sec. 15. Notification of Adverse Financial Condition

(a) An insurer required to furnish an audited financial report shall require the accountant to immediately notify in writing the Board of Directors of the insurer or its audit committee of a determination by that accountant that:

(1) the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination; or

(2) the insurer does not meet the minimum capital and surplus requirements provided by this code for that insurer as of that date.

(b) The insurer shall furnish to the Commissioner a copy of the accountant’s written notice not later than the fifth business day after the date on which the insurer receives the notice from the accountant and shall provide the accountant with evidence that the notice has been furnished to the Commissioner. If the accountant does not receive the evidence on or before the fifth business day after the date on which the accountant notified the insurer, the accountant shall, not later than the 10th business day after the date on which the accountant notified the insurer, file a copy of the written notice with the Commissioner.

(c) If the accountant, subsequent to the date of the audited financial report filed under this article, becomes aware of facts that might have affected the report, the accountant must take action as prescribed in Volume 1, Section AU 561, Professional Standards of the American Institute of Certified Public Accountants.



(d) An accountant is not liable to the insurer, its policyholders, shareholders, officers, employees or Directors, creditors or affiliates, for any statement made under Subsections (a) and (b) of this section if the statement was made in good faith to comply with those subsections.

Sec. 16. Report on Significant Deficiencies in Internal Control

(a) In addition to the audited financial report, each insurer shall furnish to the Commissioner the written report of significant deficiencies required and prepared in accordance with the Professional Standards of the American Institute of Certified Public Accountants.

(b) The report required by this section must be filed annually by the insurer with the Commissioner not later than the 60th day after the date the audited financial report is filed. The insurer is also required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.

(c) The report must follow generally the form for communication of internal control structure matters noted in an audit described in SAS No. 60, Section AU 325, Professional Standards of the American Institute of Certified Public Accountants.

Sec. 16A. Accountant’s Letter of Qualifications

(a) The audited financial report must be accompanied by a letter furnished by the accountant stating:

(1) that the accountant is independent with respect to the insurer and conforms to the standards of the profession contained in the Code of Professional Ethics, the statements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the Texas Board of Public Accountancy, or a similar code;

(2) the background and experience of the accountant in general, the experience in audits of insurers of each individual assigned to prepare the audit, and whether the individual is an independent certified public accountant;

(3) that the accountant understands that the annual audited financial report and the accountant’s opinion on the report will be filed in compliance with this article and that the Commissioner will rely on the report and opinion in the monitoring and regulation of the financial position of insurers;

(4) that the accountant consents to the requirements of Section 17 of this article and that the accountant agrees to make the accountant’s work papers available for review by the Commissioner or the Commissioner’s designee;

(5) that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and

(6) that the accountant is in compliance with the requirements of Section 12 of this article.

(b) Subsection (a)(2) of this section does not prohibit an accountant from using any staff the accountant considers appropriate if use of that staff is consistent with the generally accepted auditing standards.

Sec. 17. Definition, Availability, and Maintenance of Accountant Work Papers

(a) Work papers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant’s examination of



the financial statements of an insurer and may include work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the accountant in the course of the accountant’s examination of the financial statements of an insurer that support the accountant’s opinion.

(b) Each insurer required to file an audited financial report shall require the accountant to make available for review by the department’s examiners the work papers and any record of communications related to the audit between the accountant and the insurer prepared in the conduct of the examination. The insurer shall require that the accountant retain the audit work papers and records of communications until the department has filed a report on examination covering the period of the audit, but not longer than seven years after the period reported.

(c) In the conduct of the periodic review by the department’s examiners, photocopies of pertinent audit work papers may be made and retained by the board. Reviews by the department’s examiners are considered investigations, and all work papers obtained during the course of those investigations may be made confidential by the Commissioner, unless admitted as evidence in a hearing before a governmental agency or in a court of competent jurisdiction.

Sec. 18. Deleted. Acts 1991, ch. 242, § 11.02



TEXAS REGULATIONS

Texas Administrative Code TITLE 28. – Insurance

Part I – State Board of Insurance Chapter 7 – Corporate and Financial Regulation

Subchapter A. – Examination and Financial Analysis

28 TAC § 7.85 Audited Financial Reports

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Accountant – An independent certified public accountant or accounting firm that meets the requirements of Insurance Code, Article 1.15A, § 12.

(2) Audited Financial Report – The annual audit report required by Insurance Code, Article 1.15A.

(3) Commissioner – The Commissioner of Insurance.

(4) Department – The Texas Department of Insurance.

(5) Examiner – Staff appointed by the Commissioner pursuant to Insurance Code, Articles 1.17 and 1.18.

(6) Generally Accepted Accounting Principles (GAAP) – The conventions, rules, and procedures that define accepted accounting practice, including broad guidelines and detailed procedures, set for the by the Accounting Principles Board of the American Institute of Certified Public Accountants, which was superseded by the Financial Accounting Standards Board, and which principles are specifically defined by SAS Number 69 (AU § 411.05).

(7) Generally Accepted Auditing Standards (GAAS) – The standards adopted by the American Institute of Certified Public Accountants to conduct an audit and to ensure the quality of the performance by accountants who are engaged in an audit of financial statements.

(8) NAIC – The National Association of Insurance Commissioners.

(9) Statutory Examination – An examination performed by the Department’s examiners or other persons or firms retained by the Department specifically for examination of insurers, corporations, or associations.

(10) Work Papers – The records kept by the accountant supporting that accountant’s audit opinion, including the audit records defined by Insurance Code, Article 1.15A, § 17(a); the accountant’s audit planning records; and any record of communications related to the audit between the accountant and the insurer pursuant to the Insurance Code, Article 1.15A, § 17(b).

(11) Material – An item of information that should be reported if it is significant enough to have an effect on the decision maker. Materiality is dependent upon the relative size of an item, the precision with which the item can be estimated, the nature of the item, and the dollar amount above which the auditor’s perspective of the item will be influenced. An item is material for



accounting purposes if the omission or misstatement of it, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatements.

(b) Hierarchy of Authority. The priority for determination of accounting standards is set out in paragraphs (1) – (3) of this subsection. For guidance on matters not specifically addressed by the resources set out in paragraphs (1) – (3) of this subsection, the Department shall first rely upon other NAIC handbooks, manuals, and instructions, and if further direction is needed shall rely upon GAAP. GAAP is prescribed to the extent not conflicting with the hierarchy of authority set out in this subsection.

(1) Texas statutes.

(2) Department rules and regulations.

(3) Directives and orders of the Commissioner, and any examiner’s handbooks, manuals, bulletins, and/or instructions adopted by the Department.

(c) Applicability. This section applies only to audited financial reports with audit dates as of December 31, 1995, or later. A foreign or alien insurer may be exempt from this rule if the foreign or alien insurer files an audited financial report in another state and the requirements for that state’s audited financial reports are determined by the Commissioner pursuant to the Insurance Code, Article 1.15A, § 6(a), to be substantially similar to the requirements in Insurance Code, Article 1.15A. A foreign or alien insurer is exempt from this rule if the foreign or alien insurer files an audited financial report in another state and the requirements for that state’s audited financial reports have already been determined by the Commissioner pursuant to the Insurance Code, Article 1.15A, § 6(a), to be substantially similar to the requirements in Insurance Code, Article 1.15A.

(d) Purpose. The Department recognizes that the Insurance Code, Article 1.15A, requires audited financial reports to be prepared, and that statutory examinations are periodically conducted pursuant to the Insurance Code. To improve coordination between the audited financial reports and statutory examinations, and to promote the utilization of work papers to the fullest extent during the conduct of statutory examinations, certain minimum standards, guidelines and procedures must be incorporated by the accountant during the preparation of the work papers and the audited financial report. The purpose of this section is to establish those requirements.

(e) Conduct of audit. The annual audit required by the Insurance Code, Article 1.15A, shall be conducted in accordance with GAAS. It is not the department’s intent to expand audit testing beyond the requirements of GAAS. To the extent not inconsistent with GAAS, consideration shall be given to the procedures and conventions set out in paragraphs (1) through (4) of this subsection, as follows:

(1) audit procedures and format contained in the NAIC Financial Condition Examiners Handbook;

(2) accounting treatments for the particular line(s) of insurance contained in the NAIC Accounting Practices and Procedures Manual and the NAIC Annual Statement Instructions;

(3) valuation procedures contained in the NAIC Purposes and Procedures of the Securities Valuation Office Manual; and

(4) any order(s) of the Commissioner issued to a particular company.



(f) Contents of audited financial reports. In addition to the contents specified in the Insurance Code, Article 1.15A, § 10(a) – (c), audited financial reports shall contain the statements and reports set out in paragraphs (1) – (3) of this subsection.

(1) Balance sheet assets shall be limited to only those assets satisfying the admissibility issues of verified title and ownership, possession, valuation, and limitation. Asset admissibility issues are to be measured by compliance with the appropriate provisions of the Insurance Code and the Texas Administrative Code. The balance sheet shall include reserve and other liabilities which have been computed in accordance with the Insurance Code and the Texas Administrative Code.

(2) The statement of gain or loss from operations, statement of changes in capital and surplus, and the statement of cash flow prepared in accordance with the Texas Administrative Code and the NAIC Annual Statement Instructions.

(3) In addition to the items that must be recorded in the notes to the financial statements as required by the Insurance Code, Article 1.15A, § 10(c), any exceptions to compliance with the financial, investment, and holding company provisions of the Insurance Code or the Texas Administrative Code noted during the audit and a schedule and explanation of material nonadmitted assets shall also be recorded in notes.

(g) Contents of work papers.

(1) For those items subjected to detailed tests by the accountant during the course of the audit, the work papers shall contain notation of whether any material exceptions exist for each of the items set out in subparagraphs (A) and (B) of this paragraph.

(A) For invested assets:

(i) compliance as an authorized investment has been determined and does not exceed statutory limitations;

(ii) ownership and possession have been verified; and

(iii) securities are valued in accordance with the instructions of the NAIC Purposes and Procedures of the Securities Valuation Office Manual.

(B) For assets other than invested assets:

(i) such assets are admitted in accordance with the appropriate provision of the Insurance Code or Texas Administrative Code; and

(ii) such assets are valued in accordance with the Texas Administrative Code and the appropriate section of the NAIC Accounting Practices and Procedures Manual.

(2) If the regulated entity subject to the audit has any material reinsurance agreement or agreements, the work papers shall contain an outline addressing the items set out in subparagraphs (A) through (E) of this paragraph as follows:

(A) summary of the insurer’s overall reinsurance program;



(B) explanation of relevant provisions by which liabilities are transferred to the reinsurer and any contingency provisions by which the reinsurer can cause the ceding insurer to reassume liabilities previously transferred to the reinsurer;

(C) explanation about assets held in trust, depositories, or letters of credit by which any reserve liabilities are collateralized;

(D) verification of any material reinsurance balance ceded or assumed; and

(E) explanation of amounts recoverable from unlicensed reinsurers that are not collateralized, or disputed reinsurance recoverables.

(3) The work papers of any audited entity shall contain:

(A) any letters from the accountant to management commenting on or explaining internal management operating procedures;

(B) computer-generated work papers;

(C) audit program;

(D) reports prepared by outside consultants;

(E) for policy liabilities, a note that reserves are established in accordance with policy and statutory provisions, and that required payments were made pursuant to any contract provisions;

(F) for all other liabilities, that all material liabilities of the company have been properly recorded; and

(G) internal control work papers.

(4) The work papers of any audited entity shall contain a notation that the accountant has determined that such entity met the requirements of subparagraphs (A) and (B) of this paragraph.

(A) Filing requirements have been met of the Insurance Code, Article 21.49-1, § 3 and § 4, and the Texas Administrative Code, including but not limited to the requirements that all dividends have been reported to the Department within two business days after declaration and at least ten days prior to payment, and that all dividends have been declared to have been paid in accordance with the provisions of Insurance Code, Articles 3, 11, 21.31, 21.32, 21.32A, or 22.08, whichever statute is applicable.

(B) Unencumbered assets have been maintained in an amount at least equal to reserve liabilities as required by Insurance Code, Article 21.39-A.

(h) Accessibility of work papers. The accountant shall provide all work papers to the examiner, whether during or after the preparation of the audited financial report. The examiner may obtain, if necessary, photocopies of work papers as provided by the Insurance Code, Article 1.15A, § 17(c), so as not to burden the accountant if a statutory examination is occurring at the same time as an annual audit. Information obtained under this section is subject to the confidentiality standards imposed by Insurance Code, Articles 1.15, § 8(b); 1.15A, § 17(c); 1.18; and 21.49-1, § 10.



(i) Noncompliance with this section may result in the Commissioner initiating action pursuant to Insurance Code, Articles 1.10, § 7, and 1.15A, § 12(d).


NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS UTAH

UTAH STATUTES

Title 31A, Chapter 4 Rule R590-147

Title 31A, Chapter 4, Section 113 (Annual reports) of the Utah Statutes states in part:

“The statement… shall be in the general form and provide the information as prescribed by the Commissioner by rule. In the absence of a statute providing otherwise, the statement shall be prepared in accordance with the Annual Statement Instructions and the Accounting Practices and Procedures Manual which is published by the National Association of Insurance Commissioners.”



VERMONT STATUTES

TITLE 8, Part 3 – Insurance Chapter 101 -- Insurance Companies Generally

Subchapter 7 -- Examination and Reports

T. 8 § 3578 Annual Audited Financial Reports

(a) Audit Required

All insurers licensed to do business in this state shall retain a certified public accountant, qualified under section 3579 of this title, to audit and report annually on the financial position and the results of operations of insurers. The audit shall be conducted in conformance with generally accepted auditing principles and the accountant may use such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners in the performance of the audit required under this section.

(b) Audit Report

The accountant shall prepare an annual audit report which conforms to statutory accounting practices and contains at least the following:

(1) a narrative report of the independent certified public accountant;

(2) the balance sheet reporting admitted assets, liabilities, capital and surplus;

(3) statement of operations;

(4) statement of cash flows;

(5) statement of changes in capital and surplus;

(6) notes to financial statements required by the National Association of Insurance Commissioners’ Annual Statement Instructions or generally accepted accounting principles. The notes shall include, but are not limited to, a written report reconciling any differences between the audited financial statements and the annual statement filed pursuant to section 3561 of this title;

(7) a letter signed by the qualified accountant describing his or her background, experience and qualifications;

(8) a summary of ownership and the relationships of the insurer with all affiliated companies; and financial statements. The financial statements included in the report shall be prepared in a form and using language and groupings substantially the same as those required in the annual statement filed under section 3561 of this title and shall contain comparative data for the year preceding the current audit year.

(c) Filing

The report required under this section shall be filed with the Commissioner on or before June 1 for the year ending December 31 immediately preceding. The Commissioner may grant an extension of the time for filing for good cause shown. Requests for extensions must be received at least ten days before the expiration of the filing period and must provide sufficient detail to permit the Commissioner to make an informed decision on the request for extension.



(d) Additional Reports

The independent certified public accountant shall report to the insurer, in writing, any significant deficiencies in internal controls, within 60 days after filing the annual audited financial statement. The independent certified public accountant shall report to the insurer in writing any determination by the certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of this title, within five business days. Within five days of receipt, the insurer shall file with the Commissioner any report prepared by the independent certified public accountant notifying the insurer’s Board of Directors or its audit committee of significant deficiencies in internal controls or of any adverse financial conditions of the insurer, including, but not limited to, any determination by the accountant that the insurer has materially misstated its financial condition as reported to the Commissioner or that the insurer does not meet the minimum capital and surplus requirements of this title. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies. The independent certified public accountant shall file the reports required by this subsection directly with the Commissioner if the accountant fails to receive written evidence that the insurer has provided the Commissioner such reports within ten days of publication of the report to the board or committee.

The accountant shall not be liable in any manner to the insurer for any statement made in connection with this subsection, if such statement is made in good faith.

(e) Exemption for Small Insurers and for Hardship

Upon application, the Commissioner may exempt from the requirements of this section any insurer with direct premiums written in this state of less than $250,000.00 and less than 500 policyholders or certificate holders of directly written policies nationwide at the end of any calendar year, unless the Commissioner finds that the audit is necessary to assure compliance with this title or that the insurer has assumed premiums on contracts or treaties of reinsurance or both of at least $250,000.00. Upon application of an insurer, the Commissioner may in his or her discretion, grant an exemption from compliance with this section if the Commissioner finds that compliance would cause financial or organizational hardship on the insurer and if the Commissioner has no reason to believe that the insurer is financially impaired.

(f) Audit Reports of Foreign and Alien Insurers

Foreign or alien insurers required to file audited financial reports with any state which are found by the Commissioner to be substantially similar to the requirements of subdivisions (b)(1) through (6), (8) and (9) of this section, may file with the Commissioner a copy of the report filed with the foreign or alien jurisdiction together with any additional reports required of the accountant in lieu of separate compliance with this section. Upon request of the Commissioner, a foreign or alien insurer shall file the letter required under subdivision (b)(7) of this section. Nothing in this subsection precludes or limits the Commissioner from ordering, conducting or performing examinations of insurers under this title or any regulations promulgated under it.

(g) Consolidated or Combined Reports

The Commissioner may permit an insurer to file audited consolidated or combined financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves, and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, containing the following information:

(1) amounts shown on the consolidated or combined annual statement;

(2) amounts for each insurer separately stated;



(3) results of noninsurance operations on a combined or individual basis;

(4) explanations of consolidating and eliminating entries; and

(5) reconciliation of any differences between the amounts shown for individual insurers and comparable amounts on their annual statements.

T. 8 § 3579 Qualifications of Independent Certified Accountant

(a) A certified public accountant retained to perform audits of an insurer under section 3578 of this title shall:

(1) be a member in good standing of the American Institute of Certified Public Accountants and in all states in which the accountant is licensed, or, for a Canadian or British company, be a chartered accountant;

(2) be independent with respect to the insurer;

(3) conform to the standards of the profession as contained in the code of professional ethics of the American Institute of Certified Public Accountants and of the Vermont board of public accountancy or similar codes governing such accountant’s professional conduct or ethics.

(b) A domestic insurer required to be audited under section 3578 of this title shall register with the Commissioner the name and address of the certified public accountant retained in compliance with this section, and pay a registration fee of $100.00. If the Commissioner determines that a report filed under section 3578(f) of this title is not substantially similar to the requirements imposed on a domestic insurer, a foreign or alien insurer shall, within 30 days of such determination, register the name and address of the certified public accountant retained in compliance with this section, and pay a registration fee of $100.00. The notice of registration shall include the accountant’s statement that the accountant:

(1) meets the requirements of this section;

(2) is familiar with the insurance laws of the insurer’s state of domicile that relate to accounting and financial matters;

(3) will express his or her opinion on whether the financial statements conform to the statutory accounting practices prescribed or permitted by the department, and specify any exceptions;

(4) understands that the Commissioner will be relying on the accountant’s report to monitor the financial position of the insurer;

(5) agrees to make available to the Commissioner for inspection or copying any and all work papers generated in the audit including, but not limited to, procedures followed, tests performed, information obtained, conclusions, planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of documents, schedules or commentaries prepared or obtained by the independent certified public accountant in the course of examination; and

(6) agrees to retain the audit work papers until the department has filed a report of examination on the period of the audit, but no longer than seven years from the date of the audit report.



(c) An insurer shall notify the Commissioner in writing within five business days of the dismissal or resignation of the accountant who prepared the insurer’s immediately preceding filed audited financial report. The insurer shall notify the Commissioner in writing, within ten business days of the notice of dismissal or resignation, whether in the 24 months preceding such dismissal or resignation there were any substantial, material disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, including disagreements resolved to the former accountant’s satisfaction and disagreements not resolved to the former accountant’s satisfaction. Substantial disagreements include those that occur between the former accountant and personnel of the insurer responsible for the insurer’s audited financial report. Material disagreements include those which, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion.

(d) (1) The Commissioner shall disqualify any certified public accountant who:

(A) has engaged in unprofessional conduct as defined by section 76 of Title 26;

(B) has been found to have violated the insurance laws of any state with respect to prior audit reports; or

(C) has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this section.

(2) After notice and hearing, the Commissioner may find that a certified public accountant is not qualified to express his or her opinion in the report required by this section and may require the insurer to replace the accountant with an accountant qualified under this section. Any hearing held under this subsection shall be governed by chapter 25 of Title 3.

(e) No partner or other person rendering the report required by section 3578 of this title may act in that capacity for more than seven consecutive years. Upon application, the Commissioner may find that the rotation requirement of this subsection would pose an unreasonable hardship on the insurer and may extend the accountant’s period of qualification for an additional term. In making such determinations the Commissioner may consider the experience of the retained accountant and the size of his or her business, the premium volume of the insurer and the number of jurisdictions in which the insurer transacts business.

(f) In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.



VIRGIN ISLANDS INSURANCE STATUTES

TITLE 22, Chapter 9 -- Insurers General Requirements

222a Audited Annual Reports

(a) All authorized insurers licensed to do business in the Virgin Islands shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 30 of each year for the year ending December 31 immediately preceding.

(b) The Commissioner shall suspend or revoke the certificate of authority of any insurer who fails to timely file its audited annual report unless an extension for good cause has been applied for in writing, not less than 30 days prior to the due date, and said extension has been granted by the Commissioner.

(c) In the case of Canadian, British, or other alien insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies, with the insurance regulatory authority in their country of domicile, duly audited by an independent qualified accountant, chartered or certified. Such report shall be filed with the Commissioner on or before the 30th day of September of each year for the immediately preceding calendar year. Further, the Commissioner may waive any provision of this section which may be inapplicable to alien insurers.

(d) (1) Insurers having direct premiums written in this Territory of less than $1,000,000 in any calendar year and fewer than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this rule for such year, unless the Commissioner makes a specific finding that compliance is necessary for him to carry out his statutory responsibilities. Insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

(2) Foreign insurers filing audited financial reports in another state pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this mandate if:

(A) A copy of the audited financial report, the report on significant deficiencies in internal controls and the accountant’s letter of qualifications, which are filed with such other state, are filed with the Commissioner in accordance with the respective filing dates specified in this section.

(B) A copy of any notification of adverse financial condition report filed with such other state is filed with the Commissioner within the time specified in subsection (g) of this section.

(e) The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the company’s state of domicile. The annual audited financial report shall include the following:









(A) A reconciliation of differences, if any, between the audited financial statement and the annual statement filed pursuant to section 222 of this title with a written description of the nature of these differences.

(B) A summary of ownership and relationships of the insurer and all affiliated companies.

7. The financial statements included in the audited financial report shall be prepared in a form using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and the financial statement shall be comparative, representing the amounts as of December 31 of the year for which the statements were prepared and the amounts as of December 31 of the immediately preceding calendar year. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

(f) (1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a qualified accountant, chartered or certified.

(2) No partner, or other person of an accounting firm, responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any such period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances.

(3) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who:

(A) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, or any dishonest conduct or practices under federal or state law;

(B) Has been found to have violated the insurance laws of this Territory with respect to any previous reports submitted under this section; or

(C) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this section.



(g) (1) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing, within five (5) business days, to the company’s Board of Directors or its audit committee, any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of section 451 of this title as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

(2) No independent public accountant shall be liable in any manner to any person for any statement pursuant to paragraph (1) of this subsection if such statement is made in good faith in compliance with paragraph (1).

(3) If the accountant, subsequent to the date of the audited financial report filed pursuant to this section, becomes aware of facts which might have affected his report, the accountant is obligated to take such action as prescribed by the American Institute of Certified Public Accountants.

(h) In addition to the annual audited financial statement, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. No report shall be required if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed by the insurer with the Insurance Division within sixty (60) days after the filing of the annual audited financial statement. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

(i) The accountant shall furnish the insurer, in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

(1) That the accountant is independent with respect to the insurer and conforms to the standards of his profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Virgin Islands Board of Public Accountancy, or similar licensing entity.

(2) That, considering their background and experience in general, as well as their experience in insurance audits, the staff members assigned to the engagement are qualified to perform the audit. However, nothing within this subsection shall be construed as prohibiting the accountant from utilizing such staff as he deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant understands the requirements of the audited financial report and his opinion thereon will be filed in compliance with this section and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.



(4) That the accountant consents to the requirements of subsection (j) of this section and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in subsection (j).

(5) That the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing with the American Institute of Certified Public Accountants.

(6) That the accountant is in compliance with the requirements of subsection (f) of this section.

(j) (1) Every insurer required to file an audited financial report pursuant to this section, shall require the accountant to make available for review by the Insurance Division’s examiners, all workpapers prepared in the conduct of his examination and any written communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Insurance Division or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and written communications until the Insurance Division has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

(2) In the conduct of the aforementioned periodic review by the Insurance Division’s examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Division. Such reviews by the Division’s examiners shall be considered investigations and all working papers and written communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Division.

(3) Workpapers include the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work program, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statement of an insurer and which support his opinion thereof.

(k) The Commissioner may promulgate rules and regulations, as deemed necessary, to effectuate the purposes of this section.



VIRGINIA ADMINISTRATIVE CODE

Title 14, Agency 5, Chapter 270

14 VAC 5-270-10 Purpose

The purpose of this regulation is to improve the commission’s monitoring of the financial condition of licensed companies by requiring an annual examination by an Independent Certified Public Accountant of the financial statements reporting the financial position and the results of operations of insurers.

Authority -- §§ 38.2-1109, 38.2-1203, 38.2-1301, 38.2-2506, 38.2-2613, 38.2-3804, 38.2-3903, 38.2-4004, 38.2-4126, 38.2-4214, 38.2-4307.1, 38.2-4408, 38.2-4509 and 38.2-4602 of the Code of Virginia.

14 VAC 5-270-20 Applicability

This chapter (14 VAC 5-270-10 et seq.) shall apply to all life, accident and health, sickness, and property and casualty insurers licensed to transact the business of insurance in Virginia under Chapter 10 (§ 38.2-1000 et seq.) of Title 38.2 of the Code of Virginia and all other organizations licensed to do business under any one or more of the following chapters of Title 38.2 of the Code of Virginia, subject to the limitations and/or exemptions as further stated in this regulation.

1. Chapter 11 -- Captive Insurers.

2. Chapter 12 -- Reciprocal Insurance.

3. Chapter 25 -- Mutual Assessment Property and Casualty Insurers.

4. Chapter 26 -- Home Protection Companies.

5. Chapter 38 -- Cooperative Nonprofit Life Benefit Companies.

6. Chapter 39 -- Mutual Assessment Life, Accident and Sickness Insurers.

7. Chapter 40 -- Burial Societies.

8. Chapter 41 -- Fraternal Benefit Societies.

9. Chapter 42 -- Health Services Plans.

10. Chapter 43 -- Health Maintenance Organizations.

11. Chapter 44 -- Legal Services Plans.

12. Chapter 45 -- Dental or Optometric Services Plans.

13. Chapter 46 -- Title Insurance.

14 VAC 5-270-30 Scope

This chapter (14 VAC 5-270-10 et seq.) shall apply to all organizations listed in 14 VAC 5-270-20, hereinafter referred to as “insurers.” Insurers having direct premiums written of less than $1 million in any calendar year and having less than 1,000 policyholders or certificateholders of directly written policies at the end of such calendar year are exempt from the requirements of this regulation for such year unless the commission deems that compliance with



The commission may require an insurer to file an Audited Financial Report earlier than the due date with ninety (90) days advance notice to the insurer.

An extension of the due date filing date may be granted by the commission for periods of up to thirty days upon a showing by the insurer and its Accountant of the reasons for requesting such extension and upon determination by the commission of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the commission to make an informed decision with respect to the requested extension.

14 VAC 5-270-60 Contents of Annual Audited Financial Report

The annual Audited Financial Report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the insurer’s state of domicile. The annual Audited Financial Report shall include the following:

1. Report of Independent Certified Public Accountant.





6. Notes to financial statements. These notes shall be those required by the appropriate annual statement and NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed pursuant to §§ 38.2-1300, 38.2-4126 or 38.2-4307 of the Code of Virginia with a written description of the nature of these differences.

7. The financial statements included in the Audited Financial Report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement the insurer filed with the commission and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. However, in the first year in which an insurer is required to file an Audited Financial Report, the comparative data may be omitted.

14 VAC 5-270-70 Designation of Independent Certified Public Accountant

Each insurer required by this regulation to file an annual Audited Financial Report must within sixty (60) days after becoming subject to such requirement, register with the commission in writing the name and address of the Accountant retained to conduct the annual audit set forth in this chapter.

As part of this registration, the insurer shall obtain a letter from the accountant and file a copy with the commission stating that the Accountant is aware of the provisions of the insurance code and the rules and regulations of the insurance department of the state of domicile that relate to accounting and financial matters, and affirming that he will express his opinion on the financial statements in the terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying such exceptions as he may believe appropriate.

If the accountant who was the accountant for the immediately preceding filed Audited Financial Report is dismissed or resigns, the insurer shall notify the Commission within five business days of this event. The insurer also shall



furnish the commission with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in his opinion. The disagreements required to be reported in response to this section include those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this Section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer also in writing shall request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for disagreement; and the insurer shall furnish such responsive letter from the former accountant to the commission together with its own letter.

14 VAC 5-270-80 Qualifications of the Accountant

A. The commission shall not recognize a person or firm as a qualified accountant if that person or firm:

1. Is not in good standing with the AICPA and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant; or

2. Has either directly or indirectly entered into an agreement of indemnity or release form liability, collectively referred to as indemnification, with respect to the audit of the insurer.

B. Except as otherwise provided in this chapter, the commission shall recognize an independent Certified Public Accountant as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Conduct of the AICPA and the Rules and Regulations, including the Standards of Practice of the Virginia Board of Accountancy or similar code.

C. A qualified independent Certified Public Accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under Chapter 15 (§ 38.2-1500 et seq.) of Title 38.2 of the Code of Virginia, the mediation or arbitration provisions shall operate at the option of the statutory successor.

D. No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service, such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the commission for relief from the above rotation requirement on the basis of unusual circumstances. The commission may consider the following factors in determining if the relief should be granted:




E. The commission shall not recognize as a qualified accountant, nor accept any annual Audited Financial Report, prepared in whole or in part by any person who:



1. has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. Sections 1961- 1968) or any dishonest conduct or practices under federal or state law;

2. has violated the insurance laws of this Commonwealth with respect to any previous reports submitted under this regulation; or

3. has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this chapter.

F. The commission may (i) make a determination as to whether an accountant is qualified and may, based upon the facts considered, determine that such Accountant is not qualified for purposes of expressing an opinion on the financial statements in the annual Audited Financial Report made pursuant to this regulation and (ii) require the insurer to replace such accountant with another whose relationship with the insurer is qualified within the meaning of this regulation.

14 VAC 5-270-90 Consolidated or Combined Audits

An insurer may make written application to the commission for approval to include in its Audited Financial Report audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

1. Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet.

2. Amounts for each insurer subject to this section shall be stated separately.


4. Explanations of consolidating and eliminating entries shall be included.

5. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the Annual Statements of the insurers.

14 VAC 5-270-100 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to 14 VAC 5-270-60 hereof shall be examined by an accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the accountant deems necessary.

14 VAC 5-270-110 Notification of Adverse Financial Condition

The insurer required to furnish the annual Audited Financial Report shall require the accountant to report in writing within five (5) business days to the Board of Directors or its audit committee any determination by the accountant that the insurer has materially misstated its financial condition as reported to the commission as of the balance sheet date under examination or that the insurer does not meet its minimum statutory capital and surplus requirements as of that date pursuant to Virginia law. An insurer that has received a report pursuant to this paragraph shall forward a copy of



the report to the commission within five (5) business days of receipt of such report and shall provide the Accountant making the report with evidence of the report being furnished to the commission. If the accountant fails to receive such evidence within the required five (5) business day period, the accountant shall furnish to the commission a copy of its report within the next five (5) business days.

No accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if such statement is made in good faith in compliance with the above paragraph.

If the accountant, subsequent to the date of the Audited Financial Report filed pursuant to this regulation, becomes aware of facts which might have affected his report, the commission notes the obligation of the accountant to take such action as prescribed in Volume 1, AU Section 561 of the Professional Standards of the AICPA.

14 VAC 5-270-120 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the commission with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. Statement on Auditing Standards No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the AICPA) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the commission within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

14 VAC 5-270-130 Accountant’s Letter of Qualifications

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual Audited Financial Report, a letter stating:

1. That he is independent with respect to the insurer and conforms to the standards of his profession as contained in the AICPA’s Code of Professional Conduct and pronouncements of its Financial Accounting Standards Board, and the Standards of Practice of the Virginia Board for Accountancy, or similar code.

2. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an Accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

3. That the accountant understands the annual Audited Financial Report, and that its opinion thereon will be filed in compliance with this regulation and that the commission will be relying on this information in the monitoring and regulation of the financial position of insurers.

4. That the accountant consents to the requirements of 14 VAC 5-270-140 and that the Accountant consents and agrees to make available for review by the commission, its designee or appointed agent, the workpapers, as defined in 14 VAC 5-270-40.

5. That the accountant is properly licensed by an appropriate state licensing authority and that he is a member in good standing in the AICPA.

6. That the accountant is in compliance with 14 VAC 5-270-40.



14 VAC 5-270-140 Availability and Maintenance of CPA Workpapers

Every insurer required to file the Audited Financial Report described in this regulation, shall require the accountant to make available for review by the commission’s examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the commission or at any other reasonable place designated by the commission. The insurer shall require that the accountant retain the workpapers and communications until the commission has filed a Report on Examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

In the conduct of the aforementioned periodic review by the commission’s examiners, it shall be agreed that photocopies of pertinent workpapers may be made and retained by the commission. Such reviews by the commission’s examiners shall be considered investigations and all workpapers and communications obtained during the course of such investigations shall be confidential.

14 VAC 5-270-150 Exemptions

Upon written application of any insurer, the commission may grant an exemption from any provision and/or requirement of this regulation if the commission finds, upon review of the application, that compliance with this chapter (14 VAC 5-270-10 et seq.) would constitute an undue financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Upon written application of any insurer, the commission may, for a specified period or periods, permit an insurer to file annual Audited Financial Reports on some basis other than a calendar year basis.

14 VAC 5-270-170 Canadian and British Companies

A. In the case of Canadian and British insurers, the annual Audited Financial Report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary regulatory authority duly audited by an independent chartered accountant.

B. For such insurers, the letter required in 14 VAC 5-270-70 shall state that the accountant is aware of the requirements relating to the annual Audited Financial Report filed with the commission pursuant to this Section and 14 VAC 5-270-50 and shall affirm that the opinion expressed is in conformity with such requirements.

14 VAC 5-270-180 Severability Provision

If any section or portion of a section of this chapter (14 VAC 5-270-10 et seq.) or the applicability thereof to any person or circumstance is held invalid, the remainder of the requirement or the applicability of such provision to other persons or circumstances shall not be affected thereby.



WASHINGTON REGULATIONS

TITLE 284, Chapter 284-07 Requirements As To Company Reports And Annual Statements

284-07-100 Purpose and Scope

(1) The purpose of this regulation, WAC 284-07-100 through 284-07-230, is to improve the Washington State Insurance Commissioner’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.

(2) Every insurer, as defined in WAC 284-07-110, shall be subject to this regulation. Insurers having direct premiums written of less than one million dollars in any calendar year and less than one thousand policyholders or certificateholders of directly written policies nation-wide at the end of such calendar year shall be exempt from this rule for such year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of one million dollars or more will not be so exempt.

(3) Foreign or alien insurers filing audited financial reports in another state, pursuant to such other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this rule if:

(a) A copy of the Audited Financial Report, Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the Commissioner in accordance with the filing dates specified in WAC §284-07-120, 284-07-190 and 284-07-200, respectively; and

(b) A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the Commissioner within the time specified in WAC 284-07-180.

Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance.

(4) This rule shall not prohibit, preclude, or in any way limit the Commissioner from ordering, conducting, or performing examinations of insurers under the rules, regulations, practices, and procedures of the insurance Commissioner.

(5) After January 1, 2003, all reports and filings required by WAC 284-07-100 through 284-07-230 must be filed electronically with the commissioner. This includes the audit report for the insurer’s financial statements for the year ended December 31, 2002. Insurers must electronically transmit the report or filing in PDF or other format noted on the commissioner’s website. The commissioner has the discretion to allow an insurer to file paper copies of reports and filings required by WAC 284-07-100 through 284-07-230. The insurer must demonstrate that filing in electronic form will create an undue financial hardship for the insurer. Applications for permission to file in hardcopy must be received by the commissioner at least ninety days before the statement of annual statement is due.

(6) To comply with statutory or other requirements that reports or filings be signed or verified, insurers and accountants may:



(a) Use a method of electronic signature verification that has been approved by the commissioner; or

(b) File a paper copy of the signature or verification at the time of the electronic transmission of the report or filing.

(7) The report or filing and the appropriate signatures and/or verification must both be received to complete a filing. The date of receipt of the later of the two parts of the filing is considered the receipt date of the report or filing.


For the purposes of this regulation the following definitions shall apply:

(1) “Audited financial report” means and includes those items specified in WAC 284-07-130.

(2) “Accountant” and “independent certified public accountant” mean an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for Canadian and British companies, the term means a “Canadian-chartered or British-chartered accountant.”

(3) “Insurer” has the same meaning as set forth in RCW 48.01.050. It also includes health care service contractor registered under chapter 48.44 RCW, health maintenance organizations registered under chapter 48.46 RCW, and fraternal benefit societies registered under chapter 48.36A RCW.

(4) “NAIC” means National Association of Insurance Commissioners.

(5) “Policy holder” shall also mean subscriber.

284-07-120 Filing and Extensions for Filing of Annual Audited Financial Reports

(1) All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety days advance notice to the insurer.

(2) Extensions of the June 1 filing date may be granted by the Commissioner for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

284-07-130 Contents of Annual Audited Financial Report

(1) The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Commissioner.





(b) Balance sheet reporting admitted assets, liabilities, capital, and surplus.




(f) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and NAIC Accounting Practices and Procedures Manual. The notes shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to RCW 48.05.073, 48.05.250, 48.43.050, 48.43.097, 48.44.095, or 48.46.080 with a written description of the nature of these differences.

(g) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner, and the financial statements shall be comparative, presenting the amounts as of December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

284-07-140 Designation of Independent Certified Public Accountant

(1) Each insurer required by this regulation to file an annual audited financial report must, within sixty days after becoming subject to such requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit required by this regulation. Each insurer not retaining an independent certified public accountant on the effective date of this rule, or the date on which this rule becomes applicable to it, shall register the name and address of their retained certified public accountant not less than two months before the date when the first audited financial report is to be filed.

(2) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the Washington state insurance code, Title 48, and the rules and regulations thereunder, that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Commissioner, specifying such exceptions as are believed appropriate.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall, within five business days, notify the Commissioner of this event. The insurer shall also furnish the Commissioner with a separate letter within ten business days of the above notification stating whether in the twenty-four months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant



to furnish a letter addressed to the insured stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for disagreement; and the insurer shall furnish such responsive letter from the former accountant to the Commissioner together with its own.

284-07-150 Qualifications of Independent Certified Public Accountant

(1) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(2) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and the code of professional conduct of the state of Washington board of public accountancy, or similar applicable code.

(3) No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:

(a) Number of partners, expertise of partners, or the number of insurance clients in the currently registered firm;

(b) Premium volume of the insurer; and


The requirements of this subsection shall become effective two years after the enactment of this regulation.

(4) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who:

(a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961- 1968, or any dishonest conduct or practices under federal or state law;



(5) The Commissioner as provided in RCW 48.02.060 may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this regulation and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this regulation.










284-07-170 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to WAC 284-07-130 hereof shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration should also be given to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.


(1) The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report, in writing, within five business days to the Board of Directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus or net worth requirements of the Washington state insurance code as of that date. An insurer who has received a report pursuant to this subsection shall forward a copy of the report to the Commissioner within five business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive such evidence within the required five business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five business days.

(2) No independent public accountant shall, by virtue of this regulation, be liable in any manner to any person for any statement made in connection with subsection (1) of this section if such statement is made in good faith in compliance with subsection (1) of this section.

(3) If the accountant, subsequent to the date of the audited financial report filed pursuant to this regulation, becomes aware of facts which might have affected his or her report, the accountant should take such action as is prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.



the reporting requirements of this regulation is necessary to establish the financial condition of an insurer. Insurers having assumed premiums of $1 million or more pursuant to contracts and/or treaties of reinsurance will not be so exempt.

Foreign or alien insurers filing Audited Financial Reports in another state, pursuant to that state’s requirements for filing of Audited Financial Reports and where such requirements have been found by the commission to be substantially similar to the requirements herein, are exempt from this regulation if:

1. Copies of the Audited Financial Report, the Report on Significant Deficiencies in Internal Controls, and the Accountant’s Letter of Qualifications which are filed with such other state are filed with the commission in accordance with the filing dates specified in 14 VAC 5-270-50, 14 VAC 5-270-120, and 14 VAC 5-270-130, respectively, (Canadian insurers may submit accountants’ reports as filed with the Canadian Office of the Superintendent of Financial Institutions); and

2. A copy of any Notification of Adverse Financial Condition Report filed with such other state is filed with the commission within the time specified in 14 VAC 5-270-110.

This provision shall not prohibit, preclude or in any way limit the commission’s rights with respect to workpapers described in 14 VAC 5-270-140 of this chapter or its rights concerning the ordering and/or conducting and/or performing of examinations of insurers under Title 38.2 of the Code of Virginia.

14 VAC 5-270-40 Definitions

The following words and terms when used in this chapter shall have the following meanings, unless the context indicates otherwise:

“Accountant” and “independent Certified Public Accountant” means an independent, certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (“AICPA”) and in all states in which such accountant or firm is licensed to practice; for Canadian and British companies, they mean a Canadian-chartered or British-chartered accountant.

“Audited Financial Report” means and includes those items specified in 14 VAC 5-270-60.

“Commission” means the State Corporation Commission when acting pursuant to or in accordance with Title 38.2 of the Code of Virginia.

“Due Date” means (i) June 1 for all domestic insurers; (ii) June 30 for all foreign or alien companies domiciled or entered through a state in which similar law, regulation or administrative practice provides for a June 30 filing date; and (iii) for all other insurers, the earlier of June 30 or the date established by the insurer’s state of domicile or entry for filing similar audited financial reports.

“Workpapers” means the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant’s examination of the financial statements of an insurer. Workpapers, accordingly, may include work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the accountant in the course of the examination of the financial statements of an insurer and which support the accountant’s opinion thereof.

14 VAC 5-270-50 Filing and Extensions for Filing of Annual Audited Financial Reports

All insurers shall have an annual audit by an accountant and shall file an Audited Financial Report with the commission on or before the applicable due date for the year ended December 31 immediately preceding.



284-07-190 Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Commissioner within sixty days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

284-07-200 Accountant’s Letter of Qualifications


(1) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the rules of professional conduct of the Washington board of public accountancy, or similar applicable rules.

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this rule shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant understands the annual audited financial report and the opinion thereon will be filed in compliance with this rule and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) That the accountant consents to the requirements of WAC 284-07-210 and that the accountant consents and agrees to make available for review by the Commissioner or his designee the workpapers, as defined in WAC 284-07-210.

(5) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants.

(6) A representation that the accountant is in compliance with the requirements of WAC 284-07-150.

284-07-210 Definition, Availability, and Maintenance of CPA Workpapers

(1) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the examination of the financial statements of an insurer and which support the accountant’s opinion thereof.



(2) Every insurer required to file an audited financial report pursuant to this regulation, shall require the accountant to make available for review by the Commissioner’s examiners, all workpapers prepared in the conduct of the examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the Commissioner’s office or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Commissioner has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report.

(3) In the conduct of the aforementioned periodic review by the Commissioner’s examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Commissioner’s office. Such reviews by the Commissioner’s examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the insurance Commissioner.

284-07-220 Exemptions and Effective Dates

(1) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this regulation if the Commissioner finds, upon review of the application, that compliance would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days from a denial of an insurer’s written request for an exemption from this regulation, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the rules and procedures pertaining to administrative hearings.

(2) Domestic insurers retaining a certified public accountant on the effective date of this regulation who qualifies as independent shall comply with this regulation for the year ending December 31, 1992, and each year thereafter unless the Commissioner permits otherwise.

(3) Domestic insurers not retaining a certified public accountant on the effective date of this regulation who qualify as independent may meet the following schedule for compliance unless the Commissioner permits otherwise.





(b) For the year ending December 31, 1992, and each year thereafter, such insurers shall file with the Commissioner all reports required by this regulation.

(4) Foreign insurers shall comply with this regulation for the year ending December 31, 1992, and each year thereafter, unless the Commissioner permits otherwise.

(5) An insurer who on December 31, 1993, was not subject to WAC 284-07-100 through 284-07-230, and who on that date retained a certified public accountant, who is qualified as independent, shall comply with this regulation for the year ending December 31, 1993, and each year thereafter unless the Commissioner permits by order, bulletin, letter, or otherwise, for a specific insurer or any one or more insurers.



(6) An insurer who on December 31, 1993, was not subject to WAC 284-07-100 through 284-07-230, and who on that date did not retain a certified public accountant, who is qualified as independent, shall meet the following minimum schedule for compliance unless the Commissioner permits by order, bulletin, letter, or otherwise, for a specific insurer or any one or more insurers.

(a) As of December 31, 1993, file with the Commissioner by June 1, 1994:




(b) And, for the year ending December 31, 1994, and each year thereafter, such insurers shall file with the Commissioner all reports required by this regulation.



(2) For such insurers, the letter required in WAC 284-07-140(2) shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to WAC 284-07-120 and shall affirm that the opinion expressed is in conformity with such requirements.



WEST VIRGINIA INSURANCE STATUTES

Chapter 33, Article 33 -- Annual Audited Financial Report

33-33-1 Purpose

(a) The purpose of this article is to improve the insurance Commissioner’s surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial condition and the results of operations of insurers.

(b) Foreign or alien insurers filing audited financial reports in another state, pursuant to the other state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from this article if:

(1) A copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with the other state are filed with the Commissioner in accordance with the filing dates specified in sections three, ten and ten-a, of this article, respectively. Canadian insurers may submit accountants’ reports as filed with the Canadian Dominion Department of Insurance.

(2) A copy of any notification of adverse financial condition report filed with the other state is filed with the Commissioner within the time specified in section nine.

(c) This article shall not prohibit or preclude or in any way limit the Commissioner from performing examinations of insurers as specified in section nine, article two of this chapter or any other examinations as the Commissioner may be authorized by this chapter to perform.

33-33-2 Definitions

(a) “Accountant,” and “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American institute of certified public accountants and in all states in which the accountant is licensed to practice; for Canadian and British companies, the term means a Canadian-chartered or British-chartered accountant.

(b) “Annual statement” means the annual financial statement required to be filed by insurers with the Commissioner pursuant to the provisions of this chapter.

(c) “Audited financial report” means and includes those items specified in section four of this article.

(d) “Insurer” for purposes of this article means any domestic insurer as defined in section six, article one of this chapter, and includes any domestic stock insurance company, mutual insurance company, reciprocal insurance company, farmers’ mutual fire insurance company, fraternal benefit society, hospital service corporation, medical service corporation, health care corporation, health maintenance organization, captive insurance company or risk retention group and any licensed foreign or alien insurer defined in article one of this chapter.

(e) “Workpapers” means and includes audit planning documentation work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of the examination of the financial statements of an insurer and which support the opinion thereon.



33-33-3 Filing and Extensions for Filing of Report

(a) Annual audited financial reports must be filed by all insurers with the Commissioner on or before the first day of June for the year ending the thirty-first day of December immediately preceding. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

(b) Extensions of the filing date on the first day of June may be granted by the Commissioner for thirty day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting the extension and determination by the Commissioner of good cause for an extension. A request for extension must be submitted in writing not less than ten days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

33-33-4 Contents of Report

(a) The annual audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices for preparation of the annual statement or as otherwise permitted, by the Commissioner.




(3) Statement of gain or loss from operations or statement of revenue and expenses;

(4) Statement of cash flows statement;


(6) Notes to financial statements. These notes shall be those required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and Accounting Practices and Procedures Manual, as amended, including reconciliation differences, if any, between the audited statutory financial statements and the annual statement with a written description of the nature of these differences.

(7) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner; and:

(A) The financial statement shall be comparative, presenting the amounts as of the thirty-first day of December of the current year and the amounts as of the immediately preceding thirty-first day of December: Provided, That in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

(B) Amounts may be rounded to the nearest thousand dollars;

(8) Supplementary data and information. This shall include any additional clarifying information or data which the Commissioner may require to be disclosed.




(a) Each insurer required by this article to file an annual audited financial report must, within sixty days after becoming subject to the requirements, register with the Commissioner in writing the name and address of the accountant retained to conduct the annual audit set forth in this article.

(b) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of this code and rules that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Commissioner specifying any exceptions as he or she may believe appropriate.

(c) If an accountant who was not the accountant for the immediately preceding filed audited financial report, is engaged to audit the insurer’s financial statements, the insurer shall within thirty days of the date the accountant is engaged notify the Commissioner of this event.

(d) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall within five business days notify the Commissioner of this event. The insurer shall also furnish the Commissioner with a separate letter within ten business days of the above notification stating whether in the twenty-four months preceding the notification there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish it a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish the responsive letter from the former accountant to the Commissioner together with its own.

33-33-6 Qualifications of Accountants

(a) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American institute of certified public accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(b) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the code of professional ethics of the American institute of certified public accountants and the rules and regulations and code of ethics and rules of professional conduct of the West Virginia board of accountancy.

(c) No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service the person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two years. An insurer may make application to the Commissioner for relief from the above



rotation requirement on the basis of unusual circumstances. The Commissioner may consider the following factors in determining if the relief should be granted:



(3) Number of jurisdictions in which the insurer transacts business: Provided, that the requirements of this subsection shall become effective two years after the enactment of this article.

(d) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 -- 1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this article; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this article.

(e) The Commissioner may hold a hearing to determine whether a certified public accountant is qualified and considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing an opinion on the financial statements in the audited financial report made pursuant to this article and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this article.


(a) An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. If an approval is granted, a columnar consolidating or combining worksheet shall be filed with the report incorporating the following:



(3) Noninsurance operations may be shown on the worksheet on a combined or individual basis;





33-33-8 Scope of Examination and Report

The examination of the insurer’s financial statements by the independent certified public accountant shall be conducted in accordance with generally accepted auditing standards and such other procedures illustrated in the examiners’ handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary. The Commissioner may from time to time prescribe that additional auditing procedures be observed by the accountant in the examination of the financial statements of insurers pursuant to this article.


(a) The independent certified public accountant shall immediately notify, in writing, an officer or Director of the insurer and the Commissioner of any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the thirty-first day of December immediately preceding, or of any determination that the insurer does not meet the applicable minimum capital and surplus requirement of this chapter or in the case of an insurer not subject to capital and surplus requirement, that the surplus of the insurer is less than one hundred thousand dollars as of the thirty-first day of December immediately preceding. For purposes of this article material misstatement shall have the meaning prescribed by the professional standards and pronouncements of the American institute of certified public accountants: Provided that the independent certified public accountant shall report a misstatement that overstates the surplus as regards policyholders in single financial statement items by five percent or more, or when taken together with all financial statement items, the surplus as regards policyholders is overstated by ten percent or more.

(b) No independent public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with the above paragraph.

(c) If the accountant, subsequent to the date of the audited financial report filed pursuant to this article, becomes aware of facts which might have affected the report, the Commissioner notes the obligation of the accountant to take action as prescribed in Volume 1, Section AU 561 of the professional standards of the American institute of certified public accountants.

33-33-10 Evaluation of Accounting Procedures and System of Internal Control

(a) In addition to the annual audited financial reports, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. Statement on auditing standards (SAS) No. 60, “Communication of Internal Control Structure Matters Noted in an Audit,” AU Section 325 of the professional standards of the American institute of certified public accountants, requires an accountant to communicate significant deficiencies, known as “reportable conditions,” noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies.

(b) If significant deficiencies are noted, the written report shall be filed annually by the insurer with the Commissioner within sixty days after the filing of the annual audited financial reports. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.



33-33-10a Accountant’s Letter of Qualification

(a) The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

(1) That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the code of professional ethics and pronouncements of the American institute of certified public accountants and the rules of professional conduct of the West Virginia board of accountancy.

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this article shall be construed as prohibiting the accountant from utilizing staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant understands the annual audited financial report and the opinion thereon will be filed in compliance with this article and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) That the accountant consents to the requirements of section eleven of this article and that the accountant consents and agrees to make available for review by the Commissioner, or the Commissioner’s designee or appointed agent, the workpapers, as defined in section eleven.

(5) A representation that the accountant is properly licensed by the West Virginia board of accountancy and is a member in good standing in the American institute of certified public accountants.

(6) A representation that the accountant is in compliance with the requirements of section six of this article.

33-33-11 Definition, Availability and Maintenance of CPA Workpapers

(a) Workpapers shall be kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to the examination of the financial statements of an insurer.

(b) Every insurer required to file an audited financial report pursuant to this article, shall require the accountant to make available for review by the Commissioner the workpapers prepared in the conduct of the examination. The insurer shall require that the accountant retain the audit workpapers and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the Commissioner has filed a report of examination, as required by section nine, article two of this chapter, covering the period of the audit but no longer than seven years from the date of the audit report.

(c) In the conduct of the aforementioned periodic review by the Commissioner, it shall be agreed that copies of pertinent audit workpapers may be made and retained by the Commissioner. Reviews by the Commissioner shall be considered investigations and all workpapers and communications obtained during the course of any investigations shall be afforded the same confidentiality as other examination workpapers generated by the Commissioner.



33-33-12 Examinations by the Commissioner

Examinations of insurers conducted by the Commissioner pursuant to section nine, article two of this chapter may, at the discretion of the Commissioner, include and be supplemented by audit procedures performed by an independent certified public accountant as herein provided.

33-33-13 Exemptions

(a) Upon written application by an insurer, the Commissioner may grant an exemption from compliance with this article if the Commissioner finds, upon review of the application, that compliance with this article would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten days of a denial of an insurer’s written request for an exemption from this article, the insurer may request in writing a hearing on its application for an exemption.

(b) Foreign insurers shall comply with this article for the year ending the thirty-first day of December one thousand nine hundred and ninety-three and each year thereafter, unless the Commissioner permits otherwise.


(a) In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by the companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

(b) Or these insurers, the letter required in section five shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to section three and shall affirm that the opinion expressed is in conformity with hose requirements.

33-33-15 Severability

If any section or portion of a section of this article or the applicability thereof to any person or circumstance is held invalid by a court, the remainder of the article or the applicability of the provision to other persons or circumstances shall not be affected hereby.



WISCONSIN REGULATIONS

Chapter 50, Subchapter I — Annual Audited Financial Reports

50.01 Definitions

In this chapter:

(1) “Alien insurer” has the meaning provided under s. 600.03(2), Stats.

(2) “Audited financial report” means a financial report prepared and conforming to s. INS 50.06.

(3) “Executive officer” means any individual charged with the active management and control in an executive capacity of a person, whether incorporated or unincorporated and includes, but is not limited to, a chair of the board, president, vice president, treasurer, secretary, controller, and any individuals performing similar functions.

(4) “Foreign insurer” has the meaning provided under s. 600.03(20), Stats.

(5) “Independent certified public accountant” means:

(a) An independent certified public accountant, or independent accounting firm, in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant or firm is licensed, or required to be licensed, to practice; or

(b) For Canadian and British companies, a Canadian chartered or British chartered accountant.

(6) “Insurer” means an insurer licensed under s. 185.981 or ch. 611, 612, 613, 614 or 618, Stats., and the state life fund.

(7) “Policyholder surplus” means capital and surplus.

(8) “State of domicile” means the state where an insurer is domiciled or, for an alien insurer, its port of entry state.

(9) “Work papers” means records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the independent certified public accountant’s examination of the financial statements of an insurer. “Work papers” include, but are not limited to, audit planning documentation, audit guides, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of examination of the financial statements of an insurer or which support the opinion of the independent certified public accountant regarding the financial statements.

Ins 50.02 Applicability

Unless otherwise ordered by the Commissioner, this subchapter applies to all insurers except:

(1) An insurer is not subject to this subchapter for a calendar year in which the insurer has:

(a) Direct premiums written in this state of less than $100,000 and less than 1,000 policyholders or certificate holders of directly written policies in the state at the end of the calendar year; and



(b) Assumed premiums nationwide of less than $1,000,000 under reinsurance contracts or treaties and direct premiums written nationwide of less than $1,000,000.

(2) A foreign or alien insurer is exempt from this chapter except for s. Ins. 50.03 if:

(a) It complies with another state’s requirement to submit audited financial reports and the other state’s requirement is found by the Commissioner, in writing, to be substantially similar to the requirements of this chapter; and

(b) It files audited financial reports with that state’s Commissioner of insurance or equivalent agency.

(3) An insurer licensed under ch. 612, Stats., if the insurer meets all of the following requirements:

(a) Has direct total written premium for the calendar year, including premiums on nonproperty coverage, of less than $500,000.

(b) Has a net of reinsurance premium to policyholder surplus ratio of less than 3 to 1 as of the December 31 of the year for which an audited financial report is otherwise required.

(c) Is not authorized under its articles of incorporation to do business in more than 8 counties.

(d) Does not engage in the writing of nonproperty coverage unless the nonproperty coverage is 90% reinsured.

Ins 50.03 Filing by Exempt Foreign and Alien Insurers

A foreign or alien insurer which is exempt from this subchapter under s. INS 50.02(2) shall:

(1) File a copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with the other state with the Commissioner not later than the filing dates specified in ss. INS 50.05, 50.12 and 50.13, respectively. Canadian insurers which are not subject to this subchapter under s. INS 50.02(2) shall submit to the Commissioner accountants’ reports as filed with the Canadian Dominion department of insurance not later than the filing dates specified in s. INS 50.05.

(2) File with the Commissioner a copy of any notification of adverse financial condition report filed with, or required to be filed with, the other state within the time specified in s. INS 50.11.

Ins 50.04 Authority to Obtain Information or Examine Not Restricted

This subchapter does not limit the authority of the Commissioner to require an insurer or any other person to provide information, or to conduct an examination of an insurers or any other person, under any other statute or rule.

Ins 50.05 Filing and Extensions for Filing of Annual Audited Financial Reports

(1) An insurer shall:

(a) Annually obtain or cause an audit of the insurer by an independent certified public accountant; and

(b) File an audited financial report that complies with s. INS 50.06 with the Commissioner on or before June 1 for the immediately preceding calendar year.



(2) The Commissioner may require an insurer to file the audited financial report earlier than the date specified under sub. (1) if the Commissioner gives 90 days advance notice to the insurer.

(3) The Commissioner may grant extensions of the filing date under sub. (1) for 31-day periods if the insurer and independent certified public accountant establish there is good cause for an extension. A request for extension shall be submitted in writing not less than 10 days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

(4) An insurer may not retain an accountant or accounting firm to comply with sub. (1) or s. INS 50.07 unless the accountant or accounting firm is an independent certified public accountant, regardless of whether the Commissioner has issued a ruling under s. Ins. 50.08(1). An insurer may not retain an accountant or accounting firm to comply with sub. (1) or s. INS 50.07 if the Commissioner under s. INS 50.08(1) rules that the accountant or accounting firm is not qualified or if the accountant or accounting firm does not comply with s. INS 50.08(2).

Ins 50.06 Contents of Annual Audited Financial Report

The annual audited financial report required under s. INS 50.05 shall comply with all of the following:

(1) Report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the department of insurance, or equivalent agency, of the state of domicile, or, for a domestic insurer, in conformity with accounting practices prescribed or permitted in annual statements filed with the Commissioner, as provided under s. INS 7.02.

(2) Include all of the following:

(a) The report of the independent certified public accountant.

(b) A balance sheet reporting admitted assets, liabilities, capital and surplus.

(c) A statement of operations.



(f) Notes to financial statements. These notes shall be those required by the appropriate National Association of Insurance Commissioners’ Annual Statement Instructions and Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to subch. II with a written description of the nature of these differences.

(3) Include financial statements prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31, except in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.



Ins 50.07 Designation of Independent Certified Public Accountant

(1) An insurer shall, within 60 days after the insurer becomes subject to this subchapter:

(a) Provide the Commissioner in writing the name and address of the independent certified public accountant retained to conduct the annual audit required by this subchapter.

(b) File with the Commissioner a copy of the letter required to be obtained under sub. (3).

(2) Insurers not retaining an independent certified public accountant on the effective date of this rule shall register the name and address of their retained independent certified public accountant not less than 6 months before the date when the first audited financial report is to be filed.

(3) An insurer shall obtain a letter from the independent certified public accountant it retains to conduct the annual audit required by this subchapter. The letter shall state that the independent certified public accountant:

(a) Is aware of the provisions of the insurance code and the rules and regulations of the insurance department or equivalent agency of the state of domicile of the insurer that relate to accounting and financial matters of insurers; and

(b) Will express an opinion on whether the financial statements conform to the statutory accounting practices prescribed or otherwise permitted by that department or equivalent agency and will specify exceptions as appropriate.

(4) If an independent certified public accountant for the immediately preceding filed audited financial report of an insurer is dismissed or resigns, the insurer shall comply with all of the following:

(a) The insurer shall within 5 business days notify the Commissioner of the dismissal or resignation.

(b) The insurer shall within 15 business days furnish the Commissioner with a letter which clearly states that there was no disagreement required to be disclosed under this paragraph or which describes any disagreement between the insurer and the independent certified public accountant in the 24 months preceding the dismissal or resignation, which:

1. Was on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; and

2. Would require the independent certified public accountant to make reference to the subject matter of the disagreement in connection with the opinion required under s. INS 50.06. The requirement to provide a description applies regardless of whether the disagreement was resolved or whether the former independent certified public accountant was satisfied with the resolution.

(c) The insurer shall within 15 business days furnish the Commissioner with a letter from the independent certified public accountant addressed to the insurer stating whether the independent certified public accountant agrees with the statements contained in the insurer’s letter required under par. (b) and, if not, stating the reasons why not.



Ins 50.08 Qualifications of Independent Certified Public Accountants

(1) The Commissioner may rule that an accountant or accounting firm is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report required under this subchapter and prohibit insurers from retaining the accountant or an accounting firm, and require insurers to replace the accountant or accounting firm, if the Commissioner finds there is cause, including, but not limited to, a finding that the accountant or accounting firm:

(a) Is not in good standing with the American institute of certified public accountants and in all states in which the accountant or accounting firm is, or is required to be, licensed to practice, or, for a Canadian or British company, that it is not a chartered accountant;

(b) Has not conformed to the standards of the accounting profession as contained in the code of professional ethics of the American institute of certified public accountants and rules and regulations and code of ethics and rules of professional conduct of the accounting examining board, or a similar code;

(c) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 USC 1961 to 1968, or any dishonest conduct or practices under federal or state law;

(d) Has been found to have violated the insurance laws or rules of this state; or

(e) Has demonstrated a pattern or practice of failing to detect or disclose material information in financial reports.

(2) After December 31, 1994, no accounting firm partner or other person responsible for rendering a report required of an independent certified public accountant may act in that capacity for more than seven consecutive years. Following any period of service such a person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 2 years. The Commissioner may grant relief from the rotation requirement on the basis of unusual circumstances. Factors the Commissioner may consider in determining if the relief should be granted include, but are not limited to:




Ins 50.09 Consolidated or Combined Audits

An insurer may file audited consolidated or combined financial statements in lieu of separate annual audited financial statements required under this subchapter if the Commissioner approves in writing and if the insurer is part of a group of insurers which utilizes a pooling or 100% reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. If the Commissioner permits a consolidated report under this section the report shall include a columnar consolidating or combining work sheet, as follows:

(1) Amounts shown on the consolidated or combined audited financial report shall be shown on the work sheet.




(3) Noninsurance operations may be shown on the work sheet on a combined or individual basis.


(5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the work sheet and comparable amounts shown on the annual statements of the insurers.

Ins 50.10 Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished under s. INS 50.06 shall be audited by an independent certified public accountant. The independent certified public accountant shall conduct the audit of the insurer’s financial statements in accordance with generally accepted auditing standards. The independent certified public accountant may also give consideration to such other procedures illustrated in the Financial Condition Examiner’s Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary. The Commissioner may require that an independent certified public accountant conduct additional procedures or provide additional reports.

Ins 50.11 Notification of Adverse Financial Condition

(1) An insurer shall require the independent certified public accountant to report, in writing and within 5 business days, to the Board of Directors of the insurer or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus or compulsory surplus requirements.

(2) An insurer who receives a report required under sub. (1) shall forward a copy of the report to the Commissioner within 5 business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence that the report has been furnished to the Commissioner.

(3) An independent certified public accountant shall furnish to the Commissioner a copy of its report required under sub. (1) within 10 business days after it is furnished to the insurer under sub. (1) unless the independent certified public accountant receives evidence the insurer has provided it within the 10 business day period to the Commissioner as required under sub. (2).

(4) An executive officer or Director of an insurer which receives notice under sub. (1) shall report the notification in writing to the Commissioner within 5 business days of the date the executive officer or Director first acquires knowledge of the notification unless prior to that date the insurer complies with sub. (2).

Ins 50.12 Report of Significant Deficiencies in Internal Controls

An insurer shall file with the Commissioner within 60 days of the date an annual financial statement is filed, or is required under s. Ins 50.05 to be filed, a written report prepared by the independent certified public accountant describing any significant deficiencies in the insurer’s internal control structure. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. An insurer is not required to file a report under this section if the independent certified public accountant does not identify



significant deficiencies. An insurer shall promptly file with the Commissioner a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the independent certified public accountant’s report.

Ins 50.13 Accountant’s Letter of Qualifications

An accountant or accounting firm retained by an insurer to comply with this subchapter shall furnish the insurer, and the insurer shall obtain and include with the filing of the annual audited financial report required under s. INS 50.05, a letter from the accountant or accounting firm stating:

(1) That the accountant or accounting firm is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the code of professional ethics and pronouncements of the American institute of certified public accountants and the rules of professional conduct of the board of public accountancy of this state, or similar code.

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. This subchapter does not prohibit the accountant or accounting firm from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.

(3) That the accountant or accounting firm understands that the annual audited financial report and his or her opinion on the annual audited financial report will be filed in compliance with this chapter and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(4) That the accountant or accounting firm consents to the requirements of s. INS 50.15 and that the accountant or accounting firm consents and agrees to make available work papers for review by the Commissioner.

(5) A representation that the accountant or accounting firm is properly licensed by an appropriate state licensing authority and is a member in good standing in the American institute of certified public accountants.

(6) A representation that the accountant or accounting firm is an independent certified public accounting firm and that there are no grounds for disqualification of the accountant or accounting firm under s. INS 50.08.

Ins 50.15 Availability and Maintenance of CPA Work Papers

(1) An insurer shall require the accountant or accounting firm which conducts an audit or other procedure under this subchapter to make available for review all work papers and any communications related to the audit or procedure between the insurer and the accountant or accounting firm at the offices of the insurer or at a reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit work papers and communications until the Commissioner has filed a report on examination covering the period of the audit but no longer than seven years from the date of the audit report.

(2) The Commissioner may photocopy work papers and retain the copies. All working papers and communications obtained by the Commissioner under this section may be treated by the Commissioner as confidential under s. 601.465, Stats.



Ins 50.16 Exemptions

(1) The Commissioner may grant an exemption from compliance with this subchapter if the Commissioner finds that compliance would constitute a financial or organizational hardship upon the insurer.

(2) An exemption may be granted at any time and from time to time for a specified period.

Ins 50.17 Canadian and British Companies

(1) In the case of Canadian and British insurers, for the purpose of this subchapter the annual audited financial report shall be defined as the annual statement of total business on the form filed by the insurers with their domiciliary supervisory authority duly audited by an independent chartered accountant.

(2) For Canadian and British insurers, the letter required in s. Ins 50.07 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner under s. INS 50.05 and shall affirm that the opinion expressed is in conformity with those requirements.



WYOMING INSURANCE STATUTES

TITLE 26, Chapter 3 Article 3 -- Annual Audited Financial Reports Law

26-3-301 Applicability

(a) Every insurer as defined by W.S. 26-1-102(a)(xvi) shall be subject to this article. Insurers having direct premiums written in this state of less than one million dollars ($1,000,000.00) in any calendar year or less than one thousand (1,000) policyholders or certificate holders of directly written policies nationwide at the end of a calendar year shall be exempt from this article for that year except an insurer shall not be exempt if:

(i) The Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities; or

(ii) The insurer has assumed premiums pursuant to contracts or treaties of reinsurance of one million dollars ($1,000,000.00) or more.

(b) Foreign or alien insurers filing audited financial reports in another state, pursuant to that state’s requirement of audited financial reports which has been found by the Commissioner to be substantially similar to the requirements of this article, are exempt from this article if:

(i) A copy of the audited financial report, report on significant deficiencies in internal controls, and the accountant’s letter of qualifications which are filed with the other state are filed with the Commissioner in accordance with the filing dates specified in W.S. 26-3-303, 26-3-310 and 26-3-311, respectively. Canadian insurers may submit accountants’ reports as filed with the Canadian dominion department of insurance; and

(ii) A copy of any notification of adverse financial condition report filed with the other state is filed with the Commissioner within the time specified in W.S. 26-3-309.

(c) This article shall not prohibit, preclude or in any way limit the Commissioner from ordering or conducting or performing examinations of insurers under this code or regulations and the practices and procedures of the department.


(a) As used in this article:

(i) “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice. For Canadian and British companies, the terms mean a Canadian-chartered or British-chartered accountant;

(ii) “Audited financial report” means and includes those items specified in W.S. 26-3-304;

(iii) “Insurer” means as defined in W.S. 26-1-102(a)(xvi).



26-3-303 Filing and Extensions for Filing of Report

(a) All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the Commissioner on or before June 1 for the immediately preceding calendar year. The Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

(b) Extensions of the June 1 filing date may be granted by the Commissioner for thirty (30) day periods upon a showing by the insurer and its independent certified public accountant of the reasons for requesting the extension and a determination by the Commissioner there is good cause for an extension. The request for extension shall be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

26-3-304 Contents of Report

(a) The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for that year in conformity with statutory accounting practices prescribed or permitted by the department of insurance of the state of domicile.


(i) Report of an independent certified public accountant;

(ii) Balance sheet reporting admitted assets, liabilities, capital and surplus;

(iii) Statement of operations;

(iv) Statement of cash flows;

(v) Statement of changes in capital and surplus;

(vi) Notes to financial statements. The notes shall be those required by the appropriate National Association of Insurance Commissioners’ Annual Statement Instructions and the most recent National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual. The notes shall include:

(A) A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to W.S. 26-3-123 with a written description of the nature of these differences;

(B) Repealed by Laws 2001, ch. 9 § 2.

(vii) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Commissioner. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31.




(a) Each insurer required by this article to file an annual audited financial report shall within sixty (60) days after becoming subject to the requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit. Insurers not retaining an independent certified public accountant on or before April 1, 1994 shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

(b) The insurer shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the insurance code and the rules and regulations of the insurance department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying the exceptions he believes appropriate.

(c) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the department of this event. The insurer shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding the dismissal or resignation there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of the former accountant would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported under this subsection include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements required to be reported under this subsection are those which occur at the decision-making level, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request and the former accountant shall furnish a letter addressed to the department with a copy to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree.

26-3-306 Qualifications of Accountants

(a) The Commissioner shall not recognize any person or firm as a qualified independent certified public accountant that is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant.

(b) Except as otherwise provided in this section, an independent certified public accountant shall be recognized as qualified as long as he conforms to the standards of his profession, as contained in the code of professional ethics of the American Institute of Certified Public Accountants and rules and regulations and code of ethics and rules of professional conduct of the Wyoming board of certified public accountants, or similar code.

(c) After April 1, 1996 no partner or other person responsible for rendering a report under this article shall act in that capacity for more than seven (7) consecutive years. Following that period of service the person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the Commissioner for relief from the rotation requirement on the basis of unusual circumstances. The



Commissioner may consider the following factors in determining whether the relief should be granted:

(i) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(ii) Premium volume of the insurer; or

(iii) Number of jurisdictions in which the insurer transacts business.

(d) The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who:

(i) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 through 1968, or any dishonest conduct or practices under federal or state law;

(ii) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this article; or

(iii) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this article.

(e) The Commissioner may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual audited financial report made pursuant to this article and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this article.


(a) An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In those cases, a columnar consolidating or combining supplemental schedules shall be filed with the report, as follows:

(i) Amounts shown on the consolidated or combined audited financial report shall be shown on the supplemental schedules;

(ii) Amounts for each insurer subject to this section shall be stated separately;

(iii) Noninsurance operations may be shown on the supplemental schedules on a combined or individual basis;

(iv) Explanations of consolidating and eliminating entries shall be included;

(v) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the supplemental schedules and comparable amounts shown on the annual statements of the insurers.



26-3-308 Examination

Financial statements furnished pursuant to W.S. 26-3-304 shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards.


(a) An insurer required to furnish an annual audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the Board of Directors or its audit committee any determination supported by adequate research conducted by the independent certified public accountant:

(i) That the insurer has materially misstated its financial condition reported to the Commissioner as of the balance sheet date currently under examination; or

(ii) That the insurer does not meet the minimum capital and surplus requirement of this code as of that date.

(b) An insurer which has received a report pursuant to subsection (a) of this section shall forward a copy of the report to the Commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner.

(c) Upon receiving the report from the insurer the Commissioner shall notify the independent certified public accountant of his receipt of the report. The independent certified public accountant shall furnish the Commissioner with a copy of the report within five (5) business days after the insurer is required to forward the report to the Commissioner, unless the Commissioner has previously acknowledged receipt of the report from the insurer.

(d) Except for any act constituting negligence or malpractice in the preparation of the annual audited financial report specified in W.S. 26-3-304, no independent certified public accountant shall be liable in any manner to any person for any statement made in connection with subsection (a) of this section if the statement is made in good faith in compliance with subsection (a) of this section.

(e) If the accountant, subsequent to the date of the audited financial report filed pursuant to this article, becomes aware of facts which might have affected his report, the accountant shall take the action prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants, and other action as prescribed by the Commissioner by rule.

26-3-310 Evaluation of Accounting Procedures and System of Internal Control

In addition to the annual audited financial statements, each insurer shall furnish the Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. No additional report shall be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the department within sixty (60) days after the filing of the annual audited financial statements. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant’s report.



26-3-311 Accountant’s Letter of Qualification

(a) An accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

(i) That the accountant is independent with respect to the insurer and conforms to the standards of his profession as contained in the code of professional ethics and pronouncements of the American Institute of Certified Public Accountants and the rules of professional conduct of the Wyoming board of certified public accountants, or similar code;

(ii) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this article shall be construed as prohibiting the accountant from utilizing staff as he deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

(iii) That the accountant understands the annual audited financial report and his opinion on the report will be filed in compliance with this article, and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

(iv) That the accountant consents to the requirements of W.S. 26-3-312, and that the accountant consents and agrees to make available for review by the Commissioner, his designee or his appointed agent, the workpapers, as defined in W.S. 26-3-312;

(v) A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants;

(vi) A representation that the accountant is in compliance with the requirements of W.S. 26-3-306.

26-3-312 Definition, Availability and Maintenance of CPA Workpapers

(a) Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his examination of the financial statements of an insurer and which support his opinion of those financial statements.

(b) Every insurer required to file an audited financial report pursuant to this article shall require the accountant to make available for review by department examiners, all workpapers prepared in the conduct of his examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, the department or at any other reasonable place designated by the Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the department has filed a report on examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

(c) In the conduct of the periodic review by the department examiners under this section, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners shall be considered investigations and all workpapers and



communications obtained during the course of the investigations shall be afforded the same confidentiality as other examination workpapers generated by the department.

26-3-313 Exemptions

(a) Upon written application of any insurer, the Commissioner may grant an exemption from compliance with this article if the Commissioner finds, upon review of the application, that compliance with this article would constitute a financial or organizational hardship upon the insurer. Exemptions may be granted at any time for a specified period. Within ten (10) days from a denial of an insurer’s written request for an exemption from this article, the insurer may request in writing a hearing on its application for an exemption. The hearing shall be held in accordance with the rules and regulations of the department pertaining to administrative hearing procedures.

(b) Domestic insurers shall comply with this article for the year ending December 31, 1993 and each year thereafter unless the Commissioner permits otherwise.

(c) Foreign insurers shall comply with this article for the year ending December 31, 1994 and each year thereafter, unless the Commissioner permits otherwise.


In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant. For Canadian and British insurers, the letter required in W.S. 26-3-305(b) shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to W.S. 26-3-303 and shall affirm that the opinion expressed is in conformity with those requirements.



WYOMING INSURANCE STATUTES

TITLE 26, Chapter 34 Article 110 – Health Maintenance Organizations – Annual Report

Annual Report

(a) Each health maintenance organization, annually, on or before March 1, shall file with the commissioner, with a copy to the administrator, a report verified by at least two (2) organization principal officers and covering the immediately preceding calendar year. Each health maintenance organization shall file with the commissioner on a quarterly basis a statement of its financial condition for the preceding quarter. Each quarterly statement shall be filed with the commissioner on or before forty-five (45) days from the end of the quarter being reported. The reports and statements shall be on forms the commissioner prescribes and shall be completed pursuant to the most recent National Association of Insurance Commissioners’ accounting practices and procedures manual.

(b) The health maintenance organization shall file on or before March 1, unless otherwise stated:

(i) Audited financial statements in accordance with the provisions of W.S. 26-3-301 through 26-3-314 on or before June 1;

(ii) A list of the providers who have executed a contract that complies with W.S. 26-34-114; and

(iii) The report on the complaint system pursuant to W.S. 26-34-112(b).

(c) All annual and quarterly statements filed pursuant to this section shall be accompanied by a computer diskette containing the same information as the statement. The commissioner may specify the size and format of the computer diskette. The commissioner may refuse to continue or may suspend or revoke the certificate of authority of any health maintenance organization failing to file its annual or quarterly statement when due.

(d) The commissioner may require any additional reports as are deemed reasonably necessary and appropriate to enable him to carry out his duties under this chapter. (Laws 1985, ch. 133, § 1; 1995, ch. 210, § 3; 2001, ch. 9, § 1.)



APPENDIX A

A-1© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners


Appendix A — This appendix contains the AICPA’s Statement of Position 95-4, “Letters for State Insurance Regulators to Comply with the NAIC Model Audit Rule,” which includes an example of the Letter of Awareness, the Letter of Change in Auditor, the Letter of Qualifications, the Letter of Notification of Adverse Financial Condition, and the Report on Internal Controls.

A-2 © 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners

NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS APPENDIX A

SUBSEQUENT CLARIFICATION OF STATEMENT OF POSITION 95-4 (LETTERS FOR STATE INSURANCE REGULATORS TO COMPLY WITH

NAIC MODEL AUDIT RULE)

On November 3, 1995, the AICPA issued Statement of Position (SOP) 95-4, Letters for State Insurance Regulators to Comply With the NAIC Model Audit Rule, to provide guidance to auditors on the form and content of communications with state insurance regulators. Such communications are required by the National Association of Insurance Commissioners (NAIC) Annual Statement Instructions Requiring Annual Audited Financial Statements, which incorporates the January 1991 Model Audit Rule (Regulation) Requiring Annual Audited Financial Statements. The guidance in the SOP was effective for audits of statutory financial statements for periods ending on or after December 15, 1995.

Although the SOP was reviewed and cleared by the NAIC prior to its issuance, when the letters were issued for the first time in 1996, several states raised issues on the qualification letter which appears in the SOP. The issues have been resolved and the illustrative accountant’s letter of qualifications has been revised to reflect those changes as follows:

Illustrative Accountant’s Letter of Qualifications

To the Board of Directors of GHI Insurance Company:

We have audited, in accordance with generally accepted auditing standards, the statutory financial statements of GHI Insurance Company (the Company) for the years ended December 31, 19X1 and 19X0, and have issued our report thereon dated [date of report]. In connection therewith, we advise you as follows:

a. We are independent certified public accountants with respect to the Company and conform to the standards of the accounting profession as contained in the Code of Professional Conduct and pronouncements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the [state] Board of Public Accountancy.

b. The engagement partner and engagement manager, who are certified public accountants, have [] years and [] years, respectively, of experience in public accounting and are experienced in auditing insurance enterprises. Members of the engagement team, most (some) of whom have had experience in auditing insurance enterprises and [X] percent of whom are certified public accountants, were assigned to perform tasks commensurate with their training and experience.

c. We understand that the Company intends to file its audited statutory financial statements and our report thereon with the Insurance Department of [name of state of domicile] and other state insurance departments in states in which the Company is licensed and that the insurance commissioners of those states will be relying on monitoring and regulating the statutory financial condition of the Company.

While we understand that an objective of issuing a report on the statutory financial statements is to satisfy regulatory requirements, our audit was not planned to satisfy all objectives or responsibilities of insurance regulators. In this context, the Company and the insurance commissioners should understand that the objectives of an audit of statutory financial statements in accordance with generally accepted auditing standards is to form an opinion and issue a report on whether the statutory financial statements present fairly in all material respects, the admitted assets, liabilities, and capital and surplus, results of operations and cash flow in conformity with accounting practices prescribed or permitted by the Insurance Department of [name of state of domicile]. Consequently, under generally accepted auditing standards, we have the responsibility, within the inherent limitations of the auditing process, to design our audit to obtain reasonable assurance that errors and irregularities that have a


APPENDIX A NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS

material effect on the statutory financial statements will be detected and to exercise due care in the conduct of the audit. The concept of selective testing of the data being audited, which involves judgment both as to the number of transactions to be audited and the areas to be tested, has been generally accepted as a valid and sufficient basis for an auditor to express an opinion on financial statements. Audit procedures that are effective for detecting errors, if they exist, may be ineffective for detecting irregularities. Because of the characteristics of irregularities, particularly those involving forgery and collusion, a properly designed and executed audit may not detect a material irregularity. In addition, an audit does not address the possibility that material errors or irregularities may occur in the future. Also, our use of professional judgment and the assessment of materiality for the purpose of our audit means that matters may exist that would have been assessed differently by insurance commissioners.

It is the responsibility of the management of the Company to adopt sound accounting policies, to maintain an adequate and effective system of accounts, and to establish and maintain an internal control structure that will, among other things, provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of [name of state of domicile].

The Insurance Commissioner should exercise due diligence to obtain whatever other information that may be necessary for the purpose of monitoring and regulating the statutory financial position of insurers and should not rely solely upon the independent auditor’s report.

d. We will retain the workpapers1 prepared in the conduct of our audit until the Insurance Department of [name of state of domicile] has filed a Report of Examination covering 19X1, but no longer than seven years. After notification to on instructions from the Company, we will make them the workpapers available for review by the Insurance Department of [name of state of domicile] at the offices of the insurer, at our offices, at the Insurance Department or at any other reasonable place designated by the Insurance Commissioner. Furthermore, in the conduct of the aforementioned periodic review by the Insurance Department of [name of state of domicile], photocopies of pertinent audit workpapers may be made (under the control of the accountant) and such copies may be retained by the Insurance Department of [name of state of domicile].2

e. The engagement partner has served in that capacity with respect to the Company since [year that current “term” started], is licensed by the [state name] Board of Public Accountancy, and is a member in good standing of the American Institute of Certified Public Accountants.

f. To the best of our knowledge and belief, we are in compliance with the requirements of section 7 of the NAIC’s Model Rule (Regulation) Requiring Annual Audited Financial Reports regarding qualifications of independent certified public accountants.

1 Section 13 of the Model Audit Rule defines workpapers as follows: Workpapers are the records kept by the independent certified public accountant of the procedures followed, the test performed, the information obtained, and the conclusions reached pertinent to the accountant's examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support the accountant's opinion.

2 Refer to AICPA, Professional Standards, Vol. 1, AU Sec. 9339, Working Papers: Auditing Interpretations of Section 339.



This letter is furnished solely for filing with the Insurance Department of [name of state of domicile] and other state insurance departments and should not be used for any other purpose.



THIS PAGE INTENTIONALLY LEFT BLANK



Reproduced with permission from the Permissions Department, Copyright © 1995, by the American Institute of Certified Public Accountants, Inc.

AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA) STATEMENT OF POSITION 95–4

LETTERS FOR STATE INSURANCE REGULATORS TO COMPLY WITH THE NAIC MODEL AUDIT RULE

Amendment to AICPA Audit and Accounting Guide Audits of Property and Liability Insurance Companies and AICPA Industry Audit Guide Audits of Stock Life Insurance Companies

Prepared by the Insurance Companies Committee and Approved by the Audit Issues Task Force of the Auditing Standards Board



NOTE

This Statement of Position presents the recommendations of the AICPA Insurance Companies Committee regarding the application of generally accepted auditing standards to audits of financial statements of insurance enterprises. Members of the AICPA Auditing Standards Board have found the recommendations in this Statement of Position to be consistent with existing standards covered by rule 202 of the AICPA Code of Professional Conduct. AICPA members should be prepared to justify departures from the recommendations in this Statement of Position.

Copyright © 1995 by American Institute of Certified Public Accountants, Inc., New York, NY 10036-8775 All rights reserved. Requests for permission to make copies of any part of this work should be mailed to Permissions Department, AICPA, Harborside Financial Center, 201 Plaza Three, Jersey City, NJ 07311-3881 1 2 3 4 5 6 7 8 9 0 AudS 9 9 8 7 6 5



SUMMARY

This Statement of Position (SOP) provides guidance to auditors on the form and content of communications with state insurance regulators; such communications are required by the National Association of Insurance Commissioners (NAIC) Annual Statement Instructions Requiring Annual Audited Financial Statements, which incorporates the January 1991 Model Rule (Regulation) Requiring Annual Audited Financial Reports (reissued in July 1995).

This SOP amends Chapter 9, “Auditor’s Reports,” of the AICPA Audit and Accounting Guide Audits of Property and Liability Insurance Companies and Chapter 11, “Auditors’ Reports, “ of the AICPA Industry Audit Guide Audits of Stock Life Insurance Companies. It is effective for audits of statutory financial statements for periods ending on or after December 15, 1995.



Letters for State Insurance Regulators to Comply With the

NAIC Model Audit Rule

Introduction

1. This Statement of Position (SOP) provides guidance to auditors on the form and content of communications with state insurance regulators. Such communications are required by the National Association of Insurance Commissioners (NAIC) Annual Statement Instructions Requiring Annual Audited Financial Statements, which incorporates the January 1991 Model Rule (Regulation) Requiring Annual Audited Financial Reports (reissued in July 1995) (hereinafter called the Model Audit Rule). The Model Audit Rule was designed by the NAIC to promote uniformity in state laws and regulations dealing with audits of insurance enterprises’ statutory financial statements. Though some states have laws or regulations that differ from the Model Audit Rule, this SOP addresses only the requirements of the Model Audit Rule.

2. To the extent that the Model Audit Rule is changed in the future, the illustrations in this SOP may need to be changed to reflect the revised provisions of the Model Audit Rule. For example, at the time of this SOP, the NAIC is in the process of codifying statutory accounting practices for certain insurance enterprises. The Annual Statement Instructions Requiring Annual Audit Financial Statements currently requires that statutory financial statements be prepared using accounting practices prescribed or otherwise permitted by the insurance department of the state of domicile. It is expected that when the NAIC completes the codification of statutory accounting practices, the Model Audit Rule will be amended to require auditors to express opinions on statutory financial statements as to their conformity with the newly codified statutory accounting principles rather than as to their conformity with statutory practices prescribed or permitted by the insurance department of the state of domicile.

Scope

3. This SOP applies to audits of financial statements of all insurance companies that file audited financial statements with state insurance departments in accordance with the NAIC’s Model Audit Rule. It amends the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide Audits of Property and Liability Insurance Companies and the AICPA Industry Audit Guide Audits of Stock Life Insurance Companies.1

Conclusions—Form and Content

Awareness

4. Section 6 of the Model Audit Rule requires that the insurer notify the insurance commissioner of the state of domicile of the name and address of the insurer’s independent certified public accountant (hereinafter referred to as auditor). In connection with that notification, the insurer is required to obtain an awareness letter from its auditor stating that the auditor—

a. Is aware of the provisions of the insurance code and the rules and regulations of the insurance department of the state of domicile that relate to accounting and financial matters.

1 The AICPA has a project under way to prepare an Audit and Accounting Guide, Audits of Life and Health Insurance Entities, which covers audits of mutual life insurance companies as well as stock life insurance companies. The new Audit and Accounting Guide would replace the Industry Audit Guide Audits of Stock Life Insurance Companies and would incorporate the guidance in this Statement of Position.



b. Will issue a report on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the insurance department of the state of domicile, specifying exceptions as appropriate.

5. The following is an illustration of the awareness letter:

To the Board of Directors of ABC Insurance Company:

We have been engaged by ABC Insurance Company (the Company) to perform annual audits in accordance with generally accepted auditing standards of the Company’s statutory financial statements. In connection therewith, we acknowledge the following:

We are aware of the provisions relating to the accounting and financial reporting matters in the Insurance Code of [name of state of domicile] and the related rules and regulations of the Insurance Department of [name of state of domicile] that are applicable to audits of statutory financial statements of insurance enterprises. Also, after completion of our audits, we expect that we will issue our report on the statutory financial statements of ABC Insurance Company as to their conformity with accounting practices prescribed or permitted by the Insurance Department of [name of state of domicile].


Change in Auditor

6. Section 6 of the Model Audit Rule requires that insurers notify the insurance department of the state of domicile within five business days of the dismissal or resignation of the auditor for the immediately preceding filed audited statutory financial statements. Within ten business days of that notification, the insurer also is required to provide a separate letter stating whether, in the twenty-four months preceding that event, there were any disagreements, subsequently resolved or not, with the former auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former auditor, would have caused the auditor to make reference to the subject matter of the disagreement in connection with the auditor’s opinion. The Model Audit Rule requires that the insurer provide the insurance department of the state of domicile a letter from the former auditor to the insurer indicating whether the auditor agrees with the statements in the insurer’s letter and, if not, stating the reasons for the disagreement.

7. The following is an illustration of the change in auditor letter:

To the Board of Directors of DEF Insurance Company:

We previously were auditors for DEF Insurance Company and, under the date of [report date], we reported on the statutory financial statements of DEF Insurance Company as of and for the years ended December 31, 19X1 and 19X0.2 Effective [date of termination], we are no longer auditors of DEF Insurance Company. We have read DEF Insurance Company’s statements in its letter dated [date of insurer’s letter], which is attached hereto, and we agree with the statements therein. [However, if the auditor is (a) not in a position to agree or disagree or (b) does not agree with the insurer’s statement, the auditor’s letter should

2 If the Auditor had not reported on any financial statements, the first sentence should be modified as follows:

We previously were engaged to audit the statutory financial statements of DEF Insurance Company as of and for the year ending December 31, 19X1.



state that the auditor is not in a position to agree or disagree or that the auditor does not agree with such statements and give the reasons.]3

Qualifications

8. Section 12 of the Model Audit Rule requires the auditor to provide a letter to the insurer to be included in the annual financial report stating—

a. The auditor is independent with respect to the insurer and conforms with the standards of his or her profession as contained in the Code of Professional Conduct and pronouncements of the AICPA and the Rules of Professional Conduct of the appropriate state board of public accountancy.

b. The background and experience in general and of the individuals used for an engagement and whether each is a certified public accountant.

c. The auditor understands that the annual audited statutory financial statements and his or her opinion thereon will be filed in compliance with the requirement of the Model Audit Rule and that the domiciliary commissioner will be relying on the information in the monitoring and regulating of the financial position of insurers.

d. The auditor consents to the workpaper requirements contained in the Model Audit Rule and agrees to make the workpapers available for review by the domiciliary commissioner or the commissioner’s designee under the auditor’s control.4

e. The engagement partner is licensed by an appropriate state licensing authority and is a member in good standing of the AICPA.

f. The auditor meets the qualifications and is in compliance with the “Qualifications of Independent Certified Public Accountant” section of the Model Audit Rule.

9. The following is an illustration of the qualification letter:

To the Board of Directors of GHI Insurance Group:

We have audited, in accordance with generally accepted auditing standards, the statutory financial statements of GHI Insurance Company (the Company) for the years ended December 31, 19X1 and 19X0, and have issued our report thereon dated [date of report]. In connection therewith, we advise you as follows:

a. We are independent certified public accountants with respect to the Company and conform to the standards of the accounting profession as contained in the Code of Professional Conduct and pronouncements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the [state] Board of Public Accountancy.

3 The insurer’s letter may contain a statement, such as—

In connection with the audits of the statutory financial statements of the Company for the years ended December 31, 19X2 and 19X1, and the subsequent interim period through [date of termination], there were no disagreements with [CPA Firm] on any matter of accounting principles, statutory accounting practices prescribed or permitted by the Insurance Department of [name of state of domicile], financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference to the subject matter of the disagreement in their reports.

4 Refer to AICPA, Professional Standards, vol. 1, AU sec. 9339, Working Papers: Auditing Interpretations of Section 339.



b. The engagement partner and engagement manager, who are certified public accountants, have [ ] years and [ ] years, respectively, of experience in public accounting and are experienced in auditing insurance enterprises. Members of the engagement team, most (some) of whom have had experience in auditing insurance enterprises and [X] percent of whom are certified public accountants, were assigned to perform tasks commensurate with their training and experience.

c. We understand that the Company intends to file its audited statutory financial statements and our report thereon with the Insurance Department of [name of state of domicile] and other state insurance departments in states in which the Company is licensed and that the insurance commissioners of those states will be relying on that information in monitoring and regulating the statutory financial condition of the Company.

While we understand that an objective of issuing a report on the statutory financial statements is to satisfy regulatory requirements, our audit was not planned to satisfy all objectives or responsibilities of insurance regulators. In this context, the Company and insurance commissioners should understand that the objective of an audit of statutory financial statements in accordance with generally accepted auditing standards is to form an opinion and issue a report on whether the statutory financial statements present fairly, in all material respects, the admitted assets, liabilities, and capital and surplus, results of operations and cash flow in conformity with accounting practices prescribed or permitted by the Insurance Department of [name of state of domicile]. Consequently, under generally accepted auditing standards, we have the responsibility, within the inherent limitations of the auditing process, to design our audit to obtain reasonable assurance that errors and irregularities that have a material effect on the statutory financial statements will be detected and to exercise due care in the conduct of the audit. The concept of selective testing of the data being audited, which involves judgment both as to the number of transactions to be audited and the areas to be tested, has been generally accepted as a valid and sufficient basis for an auditor to express an opinion on financial statements. Audit procedures that are effective for detecting errors, if they exist, may be ineffective for detecting irregularities. Because of the characteristics of irregularities, particularly those involving forgery and collusion, a properly designed and executed audit may not detect a material irregularity. In addition, an audit does not address the possibility that material errors or irregularities may occur in the future. Also, our use of professional judgment and the assessment of materiality for the purpose of our audit means that matters may exist that would have been assessed differently by insurance commissioners.

It is the responsibility of the management of the Company to adopt sound accounting policies, to maintain an adequate and effective system of accounts, and to establish and maintain an internal control structure that will, among other things, provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of financial statements in conformity with accounting practices prescribed or permitted by the Insurance Department of [name of state of domicile].

The Insurance Commissioner should exercise due diligence to obtain whatever other information that may be necessary for the purpose of monitoring and regulating the statutory financial position of insurers and should not rely solely upon the independent auditor’s report.

d. We will retain the workpapers prepared in the conduct of our audit until the Insurance Department of [name of state of domicile] has filed a Report of Examination covering 19X1, but not longer than



seven years, and, on instructions from the Company, will make them available for review by the Insurance Department of [name of state of domicile].5

e. The engagement partner has served in that capacity with respect to the Company since [year that current “term” started], is licensed by the [state name] Board of Public Accountancy, and is a member in good standing of the American Institute of Certified Public Accountants.

f. To the best of our knowledge and belief, we are in compliance with the requirements of Section 7 of the NAIC’s Model Rule (Regulation) Requiring Annual Audited Financial Reports regarding qualifications of independent certified public accountants.


Notification of Adverse Financial Condition

10. Section 10 of the Model Audit Rule requires that the auditor notify the insurer’s board of directors or audit committee in writing within five business days of a determination that (a) the insurer has materially misstated its financial condition as reported to the domiciliary commissioner as of the balance–sheet date currently under examination or (b) the insurer does not meet the minimum capital and surplus requirements of the state insurance statute as of the balance–sheet date. The Model Audit Rule also requires the insurer to provide (a) to the insurance commissioner of the state of domicile a copy of the notification of adverse financial condition within five days of its receipt and (b) to the auditor evidence that the notification has been provided to the insurance commissioner. If the auditor receives no such evidence, the Model Audit Rule requires the auditor to send the notification to the insurance commissioner directly within the next five business days.

11. The following is an illustration of the auditor’s notification of adverse financial condition letter when the audit is complete:6

To the Board of Directors of MNO Insurance Company:

We have audited, in accordance with generally accepted auditing standards, the statutory financial statements of MNO Insurance Company (the Company) as of December 31, 19X1 and 19X0, and have issued our report thereon dated [date of report].

In connection with our audit, we determined that capital and surplus reflected in the statement of admitted assets, liabilities, and capital and surplus of the Company as of December 31, 19X1, as reported on the 19X1 Annual Statement filed with the Insurance Department of [name of state] is material misstated because [provide explanation]. Statutory capital and surplus of $____ reported on the 19X1 Annual Statement should be reduced by $____ as a result of the matter in the preceding sentence.7

5 See note 4. 6 A determination that financial statements filed with a state insurance department contain a material misstatement does not necessarily always occur when an audit is complete. The Model Audit Rule requires notification to be provided within five business days of such determination. The language in this illustrative letter should be modified depending on the relevant facts and circumstances. 7 The wording of this paragraph is intended for those situations in which audit adjustments would not cause minimum capital and surplus of an insurer to fall below statutory requirements. The paragraph should be reworded if the company did not meet minimum capital and surplus requirements as presented on its Annual Statement as filed with the domiciliary commissioner.



If we do not receive evidence that the Company has forwarded a copy of this letter to the insurance commissioner of [name of state] within five business days of receipt, we are required to give the insurance commissioner a copy of this letter within the next five business days.

This letter is furnished solely for filing with the Insurance Department of [name of state] and should not be used for any other purpose.

Report on Internal Controls

12. Section 11 of the Model Audit Rule requires that insurers provide the insurance commissioner of the state of domicile a written report describing significant deficiencies in the insurer’s internal control structure noted during the audit. Auditors should follow the guidance in Statement on Auditing Standards No. 60, Communication of Internal Control Structure Related Matters Noted in an Audit (AICPA, Professional Standards, vol. 1, AU sec. 325). Additionally, the Model Audit Rule requires insurers to provide a description of remedial actions taken or proposed to correct significant deficiencies, if not covered in the auditor’s report. The reports on internal controls should be filed by the insurer within sixty days after filing the annual audited financial statements. No report is required to be issued if the auditor does not identify significant deficiencies.

Effective Date

13. This proposed SOP should be applied to audits of statutory financial statements performed for periods ending on or after December 15, 1995. Early application is encouraged.



INSURANCE COMPANIES COMMITTEE

(1994–1995)

WILLIAM C. FREDA, Chair JOHN F. MAJORS JOSEPH P. BRANDON MARTHA E. MARCON PETER S. BURGESS JAMES L. MORGAN III DARREN F. COOK ROBERT J. PRICE RICHARD DADDARIO PATRICK J. SHOUVLIN HOWARD E. DALTON GARY A. SWORDS DAVID A. DIAMOND JAMES E. TAIT

Audit Issues Task Force

EDMUND R. NOONAN, Chair JAMES S. GERSON LUTHER E. BIRDZELL DEBORAH D. LAMBERT JAMES E. BROWN GEORGE F. PATTERSON, JR.

AICPA Staff

DAN M. GUY Vice President Auditing Standards

ARLEEN RODDA THOMAS Director Accounting Standards

ELAINE M. LEHNERT Technical Manager Accounting Standards


APPENDIX B

B-1© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners

Appendix B — This appendix contains the Annual Audited Financial Reports instructions, per the NAIC Annual Statement Instructions. Instructions for both property — casualty insurers and life, accident, and health insurers have been provided.

B-2 © 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2003 National Association of Insurance Commissioners© 2004 National Association of Insurance Commissioners

NAIC GUIDE TO COMPLIANCE WITH STATE AUDIT REQUIREMENTS APPENDIX B

ANNUAL AUDITED FINANCIAL REPORTS ANNUAL STATEMENT INSTRUCTIONS—

PROPERTY & CASUALTY

ANNUAL AUDITED FINANCIAL REPORTS

The purpose of this annual statement instruction is to improve the surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.


All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report as a supplement to the annual statement on or before June 1 for the year ended December 31 immediately preceding. The domiciliary Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

2. Definitions

A. “Audited financial report” means and includes those items specified in Paragraph 3 below.

B. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.

C. “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional stands, whether or not resulting in part from knowing or other misrepresentations made by the insurer or its representatives.

D. “Insurer” means a licensed insurer as defined in Sections [insert applicable sections] of the [insert state] insurance law or an authorized insurer as defined in Sections [insert applicable sections] of the [insert state] insurance law.

3. Content





C. Statement of Operations.

D. Statement of Cash Flows.



E. Statement of Changes in Capital and Surplus.

F. Notes to Financial Statements. These notes shall be those required by the NAIC Accounting Practices and Procedures manual based on applicability, materiality and significance. Section IX of the Preamble to the NAIC Accounting Practices and Procedures manual contains additional guidance for Accountants regarding the notes to the audited financial statement. These notes shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed with the domiciliary Commissioner along with a written description of the nature of these differences.

G. The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the domiciliary Commissioner, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.)

4. Exemptions

Every insurer shall be subject to this requirement. Insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this requirement for such year (unless the domiciliary Commissioner makes a specific finding that compliance is necessary for the domiciliary Commissioner to carry out statutory responsibilities), except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Upon written application of any insurer, the domiciliary Commissioner may grant an exemption from compliance with this requirement if the domiciliary Commissioner finds, upon review of the application, that compliance with this requirement would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this requirement, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Rules and Regulations of the domiciliary state Department of Insurance pertaining to administrative hearing procedures.

5. Extensions

The domiciliary Commissioner may grant extensions of the July 1 filing date for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the domiciliary Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the domiciliary Commissioner to make an informed decision with respect to the requested extension.

6. Designation of Independent Certified Public Accountant

Each insurer required to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the domiciliary Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to here as the “accountant”) retained to conduct the annual audit set forth in this instruction. Insurers not previously retaining an independent certified public accountant shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.



The insurer shall obtain a letter from such accountant, and file a copy with the domiciliary Commissioner stating that the accountant is aware of the provisions of the Insurance Code and the Rules and Regulations of the Insurance Department of the state of domicile that relate to accounting and financial matters and affirming that he will express his opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that Department, specifying such exceptions as he/she may believe appropriate.

If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the Insurance Department of the state of domicile of this event. The insurer shall also furnish the domiciliary Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; and which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him to make reference to the subject matter of the disagreement in connection with his opinion. The disagreements required to be reported in response to this paragraph include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this paragraph are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request such former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer’s letter and, if not, stating the reasons for which he does not agree; and the insurer shall furnish such responsive letter from the former accountant to the domiciliary Commissioner together with its own.

7. Qualifications of Independent Certified Public Accountant

The domiciliary Commissioner shall not recognize any person or firm as a qualified independent certified public accountant if the person or firm is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant or has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.

Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the appropriate state Board of Public Accountancy, or similar code.

A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under [cite applicable receivership statute], the mediation or arbitration provisions shall operate at the option of the statutory successor.

No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the domiciliary Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. The domiciliary Commissioner may consider the following factors in determining if the relief should be granted: (1) number of partners, expertise of the partners or the number of insurance clients in the currently registered firm; (2) premium volume of the insurer; or (3) number of jurisdictions in which the insurer transacts business.



The domiciliary Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who: (1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law; (2) has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or (3) has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this requirement.

The domiciliary Commissioner may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual audited financial report made pursuant to this requirement and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this requirement.

8. Consolidated or Combined Audits

An insurer may make written application to the domiciliary Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet.

B. Amounts for each insurer subject to this paragraph shall be stated separately.



E. Reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

9. Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to paragraph 3 above shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners, as the independent certified public accountant deems necessary.

The insurer shall require the independent certified public accountant to subject the current Schedule P – Part 1 (excluding those amounts related to bulk and IBNR reserves and claim counts) to the auditing procedures applied in the audit of the current statutory financial statements to determine whether Schedule P – Part 1 is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole. It is expected that the auditing procedures applied by the independent CPA to the claim loss and loss adjustment expense data from which Schedule P – Part 1 is prepared would be applied to activity that occurred in the current calendar year (e.g., tests of payments on claims for all accident years that were paid during the current calendar year). [Refer to American Institute of Certified Public Accountants Statement of Position 92-8.]



The insurer shall also require that the independent certified public accountant subject the data used by the appointed actuary to testing procedures. The auditor is required to determine what historical data and methods have been used by management in developing the loss reserve estimate and whether the auditor will rely on the same data or other statistical data in evaluating the reasonableness of the loss reserve estimate. After identifying the relevant data, the auditor should obtain an understanding of the controls related to the completeness, accuracy, and classification of loss data and perform testing as the auditor deems appropriate. Through inquiry of the appointed actuary, the auditor should obtain an understanding of the data identified by the appointed actuary as significant to his or her reserve projections would not otherwise have been tested as part of the audit, and separate testing would be required. Unless otherwise agreed among the appointed actuary, management and the auditor, the scope of the work performed by the auditor in testing the claims data in the course of the audit would be sufficient to determine whether the data tested is fairly stated in all materials respects in relation to the statutory financial statements taken as a whole. The auditing procedures should be applied to the claim loss and defense and cost containment expense data used by the appointed actuary and would be applied to activity that occurred in the current calendar year (e.g., tests of payments on claims paid during the current calendar year).

10. Notification of Adverse Financial Condition

The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing within five (5) business days to the board of directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the domiciliary Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the domiciliary state Insurance Statute as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the domiciliary Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the domiciliary Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the domiciliary Commissioner a copy of its report within the next five (5) business days.


If the accountant, subsequent to the date of the audited financial report filed pursuant to this requirement, becomes aware of facts that might have affected his report, the accountant is obligated to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

11. Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the domiciliary Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the domiciliary Department within sixty (60) days after the filing of the annual audited financial statements. The



insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

12. Accountant’s Letter of Qualifications


A. That he/she is independent with respect to the insurer and conforms to the standards of his/her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the appropriate state Board of Public Accountancy, or similar code.

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this requirement shall be construed as prohibiting the accountant from utilizing such staff, as he/she deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

C. That the accountant understands the annual audited financial report and his/her opinion thereon will be filed in compliance with this requirement and that the domiciliary Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

D. That the accountant consents to the requirements of paragraph 13 of this instruction and that the accountant consents and agrees to make available for review by the domiciliary Commissioner, his/her designee or appointed agent, the workpapers, as defined in paragraph 13.

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and that he/she is a member in good standing in the American Institute of Certified Public Accountants.

F. A representation that the accountant is in compliance with the requirements of paragraph 7 of this instruction.

13. Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his/her examination of the financial statements of an insurer and which support his/her opinion thereof.

Every insurer required to file an audited financial report pursuant to this instruction shall require the accountant to make available for review by domiciliary Department examiners all workpapers prepared in the conduct of his/her examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the domiciliary Insurance Department or at any other reasonable place designated by the domiciliary Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the domiciliary Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.



In the conduct of the aforementioned periodic review by the domiciliary Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the domiciliary Department. Such reviews by the domiciliary Department examiners shall be considered investigations and all workpapers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the domiciliary Department.

14. Canadian and British Companies

In the case of Canadian and British insurers, the annual audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their domiciliary supervision authority duly audited by an independent chartered accountant.

For such insurers, the letter required in paragraph 6 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to paragraph 1 and shall affirm that the opinion expressed is in conformity with such requirements.






The domiciliary Commissioner shall not recognize any person or firm as a qualified independent certified public accountant if the person or firm is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant or has directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.



No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service, such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the domiciliary Commissioner for relief from the above rotation requirement on the basis of unusual circumstances.

The domiciliary Commissioner may consider the following factors in determining if the relief should be granted: (1) number of partners, expertise of the partners or the number of insurance clients in the currently

B-10 © 2004 National Association of Insurance Commissioners


ANNUAL AUDITED FINANCIAL REPORTS ANNUAL STATEMENT INSTRUCTIONS—

LIFE, ACCIDENT AND HEALTH

ANNUAL AUDITED FINANCIAL REPORTS

The purpose of this instruction is to improve the surveillance of the financial condition of insurers by requiring an annual examination by independent certified public accountants of the financial statements reporting the financial position and the results of operations of insurers.


All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report as a supplement to the annual statement on or before June 1 for the year ended December 31 immediately preceding. The domiciliary Commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

2. Definitions

A. “Audited financial report” means and includes those items specified in paragraph 3 below.

B. “Accountant” and “Independent Certified Public Accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which they are licensed to practice; for Canadian and British companies, it means a Canadian-chartered or British-chartered accountant.”

C. “Indemnification” means an agreement of indemnity or a release from liability where the intent of effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional stands, whether or not resulting in part from knowing or other misrepresentations made by the insurer or its representatives.

D. “Insurer” means a licensed insurer as defined in Sections [insert applicable sections] of the [insert state] insurance law or an authorized insurer as defined in Sections [insert applicable sections] of the [insert state] insurance law.

3. Content




B. Balance Sheet reporting admitted assets, liabilities, capital and surplus.

C. Statement of Operations.

D. Statement of Cash Flows.

B-11© 2004 National Association of Insurance Commissioners


E. Statement of Changes in Capital and Surplus.

F. Notes to Financial Statements. These notes shall be those required by the NAIC Accounting Practices and Procedures manual based on applicability, materiality and significance. Section IX guidance for Accountants regarding the notes to the audited financial statement. These notes shall also include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed with the domiciliary Commissioner along with a written description of the nature of these differences.

G. The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the domiciliary Commissioner, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.)

4. Exemptions

Every insurer shall be subject to this requirement. Insurers having direct premiums written of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of directly written policies nationwide at the end of such calendar year shall be exempt from this requirement for such year (unless the domiciliary Commissioner makes a specific finding that compliance is necessary for the domiciliary Commissioner to carry out statutory responsibilities), except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Upon written application of any insurer, the domiciliary Commissioner may grant an exemption from compliance with this requirement if the domiciliary Commissioner finds, upon review of the application, that compliance with this requirement would constitute a financial or organizational hardship upon the insurer.

An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer’s written request for an exemption from this requirement, such insurer may request in writing a hearing on its application for an exemption. Such hearing shall be held in accordance with the Rules and Regulations of the domiciliary state Department of Insurance pertaining to administrative hearing procedures.

5. Extensions

The domiciliary Commissioner may grant extensions of the June 1 filing date for thirty-day periods upon showing by the insurer and its independent certified public accountant the reasons for requesting such extension and determination by the domiciliary Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the domiciliary Commissioner to make an informed decision with respect to the requested extension.

6. Designation of Independent Certified Public Accountant

Each insurer required to file an annual audited financial report must within sixty (60) days after becoming subject to such requirement, register with the domiciliary Commissioner in writing the name and address of the independent certified public accountant or accounting firm (generally referred to here as the “accountant”) retained to conduct the annual audit set forth in this instruction. Insurers not previously retaining an independent certified public accountant shall register the name and address of their retained certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.






The domiciliary Commissioner shall not recognize any person or firm as a qualified independent certified public accountant if the person or firm is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant or has directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.



No partner or other person responsible for rendering a report may act in that capacity for more than seven (7) consecutive years. Following any period of service, such person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of two (2) years. An insurer may make application to the domiciliary Commissioner for relief from the above rotation requirement on the basis of unusual circumstances.

The domiciliary Commissioner may consider the following factors in determining if the relief should be granted: (1) number of partners, expertise of the partners or the number of insurance clients in the currently



registered firm; (2) premium volume of the insurer; or (3) number of jurisdictions in which the insurer transacts business.

The domiciliary Commissioner shall not recognize as a qualified independent certified public accountant, nor accept any annual audited financial report, prepared in whole or in part by, any natural person who: (1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law; (2) has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or (3) has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this requirement.

The domiciliary Commissioner may hold a hearing to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his opinion on the financial statements in the annual audited financial report made pursuant to this requirement and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this requirement.

8. Consolidated or Combined Audits

An insurer may make written application to the domiciliary Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet.




E. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

9. Scope of Examination and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to paragraph 3 above shall be examined by an independent certified public accountant. The examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners, as the independent certified public accountant deems necessary.

The insurer shall require the independent certified public accountant to subject the information included in the Supplemental Schedule of Assets and Liabilities (illustrated below) to the auditing procedures applied in the audit of the current statutory financial statements to determine whether such information is fairly stated in all material respects in relation to the basic statutory financial statements taken as a whole and agrees to the insurer’s annual statement filed with the state insurance departments and the NAIC.



The supplemental schedule should be included with the audited annual statutory financial statements. The auditor should issue a report on the supplemental information as to whether the information is fairly stated in relation to the financial statements taken as a whole.



EXAMPLE INSURANCE COMPANY

Annual Statement for the Year Ended December 1, 20XX Schedule 1 – Selected Financial Data

The following is a summary of certain financial data included in other exhibits and schedules subjected to audit procedures by independent auditors and utilized by actuaries in the determination of reserves.

Investment Income Earned U.S. Government Bonds Other bonds (unaffiliated) Bonds of affiliates Preferred stocks (unaffiliated) Preferred stocks of affiliates Common stocks (unaffiliated) Common stocks of affiliates Mortgages loans Real estate Premium notes, policy loans and liens Collateral loans Cash on hand and on deposit Short-term investments Other invested assets Derivative instruments Aggregate write-ins for investment income

Gross investment income Real Estate Owned – Book Value less Encumbrances Mortgage Loans – Book Value:

Farm mortgages Residential mortgages Commercial mortgages

Total mortgage loans Mortgage Loans By Standing – Book Value:

Good standing Good standing with restructured terms Interest overdue more than three months, not in foreclosure

Foreclosure in process Other Long Term Assets – Statement Value Collateral Loans



Bonds and Stocks of Parents, Subsidiaries and Affiliates – Book:

Value Bonds Preferred Stocks Common Stocks

Bonds and Short-Term Investments by Class and Maturity: Bonds by Maturity – Statement Value

Due within one year less Over 1 year through 5 years Over 5 years through 10 years Over 10 years through 20 years Over 20 years

Total by Maturity

Bonds by Class – Statement Value Class 1 Class 2 Class 3 Class 4 Class 5 Class 6 Total by Class Total Bonds Publicly Traded Total Bonds Privately Placed

Preferred Stocks – Statement Value Common Stocks – Market Value Options, Caps & Floors Owned – Statement Value Options, Caps & Floors Written and In force – Statement Value

Collar, Swap & Forward Agreements Open – Statement Value

Futures Contracts Open – Current Value Cash on Deposit Life Insurance In Force:

Industrial Ordinary Credit Life Group Life

Amount of Accidental Death Insurance In Force Under Ordinary Policies



Life Insurance Policies with Disability Provisions In Force:

Industrial Ordinary Credit Life Group Life

Supplementary Contracts In Force: Ordinary – Not Involving Life Contingencies –

Amount on Deposit Income Payable

Ordinary – Involving Life Contingencies –

Income Payable Group – Not Involving Life Contingencies –

Amount of Deposit Income Payable

Group – Involving Life Contingencies –

Income Payable Annuities:

Ordinary – Immediate – Amount of Income Payable Deferred – Fully Paid Account Balance Deferred – Not Fully Paid – Account Balance

Group –

Amount of Income Payable Fully Paid Account Balance Not Fully Paid – Account Balance

Accident and Health Insurance – Premiums In Force: Ordinary Group Credit

Deposit Funds and Dividend Accumulations: Deposit Funds – Account Balance Dividend Accumulations – Account Balance



Claim Payments 20XX:

Group Accident and Health – Year Ended December 31, 199X –

20XX 20XX-1 20XX-2 20XX-3 20XX-4 Prior Other Accident and Health – 20XX 20XX-1 20XX-2 20XX-3 20XX-4 Prior

Other Coverages that Use Developmental Methods to Calculate Claims Reserves:

20XX 20XX-1 20XX-2 20XX-3 20XX-4 Prior

10. Notification of Adverse Financial Condition

The insurer required to furnish the annual audited financial report shall require the independent certified public accountant to report in writing within five (5) business days to the board of directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the domiciliary Commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirement of the domiciliary state Insurance Statute as of that date. An insurer who has received a report pursuant to this paragraph shall forward a copy of the report to the domiciliary Commissioner within five (5) business days of receipt of such report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the domiciliary Commissioner. If the independent certified public accountant fails to receive such evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the domiciliary Commissioner a copy of its report within the next five (5) business days.


If the accountant, subsequent to the date of the audited financial report filed pursuant to this requirement, becomes aware of facts that might have affected his report, the accountant is obligated to take such action as



prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

11. Report on Significant Deficiencies in Internal Controls

In addition to the annual audited financial statements, each insurer shall furnish the domiciliary Commissioner with a written report prepared by the accountant describing significant deficiencies in the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report should be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the domiciliary Department within sixty (60) days after the filing of the annual audited financial statements. The insurer is required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if such actions are not described in the accountant’s report.

12. Accountant’s Letter of Qualifications


A. That he/she is independent with respect to the insurer and conforms to the standards of his/her profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the appropriate state Board of Public Accountancy, or similar code.

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this requirement shall be construed as prohibiting the accountant from utilizing such staff, as he/she deems appropriate where such use is consistent with the standards prescribed by generally accepted auditing standards.

C. That the accountant understands the annual audited financial report and his/her opinion thereon will be filed in compliance with this requirement and that the domiciliary Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

D. That the accountant consents to the requirements of paragraph 13 of this instruction and that the accountant consents and agrees to make available for review by the domiciliary Commissioner, his/her designee or appointed agent, the workpapers, as defined in paragraph 13.

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and that he is a member in good standing in the American Institute of Certified Public Accountants.

F. A representation that the accountant is in compliance with the requirements of paragraph 7 of this instruction.

13. Definition, Availability and Maintenance of CPA Workpapers

Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to his examination of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work



programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his/her examination of the financial statements of an insurer and which support his/her opinion thereof.

Every insurer required to file an audited financial report pursuant to this instruction shall require the accountant to make available for review by domiciliary Department examiners all workpapers prepared in the conduct of his/her examination and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the domiciliary Insurance Department or at any other reasonable place designated by the domiciliary Commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the domiciliary Insurance Department has filed a Report on Examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

In the conduct of the aforementioned periodic review by the domiciliary Department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the domiciliary Department. Such reviews by the domiciliary Department examiners shall be considered investigations and all workpapers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the domiciliary Department.

14. Canadian and British Companies


B. For such insurers, the letter required in paragraph 6 shall state that the accountant is aware of the requirements relating to the annual audited statement filed with the Commissioner pursuant to paragraph 1 and shall affirm that the opinion expressed is in conformity with such requirements.
