054.00.91 Ark. Code R. 004
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.
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 far 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:
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.
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.
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:
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 indenendent 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.
The requirements of this paragraph shall become effective two (2) years after the enactment of this Rule and Regulation.
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 (1002) reinsurance agreement that affects the solvency and integrity of the insurer1s 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:
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.
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.
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.
The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual Audited Financial Report, a letter stating:
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 rhe 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.
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.
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.
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.
054.00.91 Ark. Code R. 004