To set forth procedures for examinations performed by non employees.

DEPARTMENT OF FINANCIAL SERVICES
OIR – Insurance Regulation

RULE NO: RULE TITLE
69O-138.005: Examination of Insurers
PURPOSE AND EFFECT: To set forth procedures for examinations performed by non employees.
SUMMARY: This rule implements subsection 624.316(2)(e), F.A.C., by setting out criteria for the specialists, a process by which an expert who wishes to be contracted with to undertake such exams can apply to do them, and the process by which the specialist is compensated.
SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 624.316 FS.
LAW IMPLEMENTED: 624.316 (2)(e) FS.
IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE,TIME AND PLACE SHOWN BELOW(IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):
DATE AND TIME: November 12, 2008, 9:30 a.m.
PLACE: 143 Larson Building, 200 East Gaines Street, Tallahassee, Florida
Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 5 days before the workshop/meeting by contacting: Robin Westcott, Office of Insurance Regulation, E-mail [e-mail]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Robin Westcott, Office of Insurance Regulation, E-mail [e-mail]

THE FULL TEXT OF THE PROPOSED RULE IS:

69O-138.005 Examination of Insurers.

(1) through (3) No change.

(4) Section 624.316(2)(e), Florida Statutes, allows the Office to conduct examinations of an insurer by contracting for with the consent of the insurer utilizing the services of an independent Certified Public Accountant, an actuary, or a reinsurance specialist, an investment specialist, information technology specialist, reinsurance specialist or any combination of these individuals, as the particular circumstances of the examination require. An examination performed pursuant to this subsection must meet the requirements of subsection (1).

(a) For purposes of this subsection, An an actuary meeting the criteria established in Rule 69O-138.043 or 69O-170.031, F.A.C., will qualify to conduct an examination under this subsection.

(b)1. For purposes of this subsection, a A reinsurance specialist shall be qualified to conduct an examination under this subsection if that contractor person can demonstrate competency by education and experience to perform such an examination. Competency by education and experience shall be demonstrated if any one of the following is true:

a. An individual qualifies as an actuary pursuant to either Rule 69O-138.043 or 69O-170.031, F.A.C., and has at least one years’ experience with the kind of reinsurance which will be the subject of the examination.

b. An individual has a bachelor’s degree from an accredited college or university and four years of professional experience in insurance/reinsurance accounting or in reinsurance transactions. A master’s degree from an accredited college or university in accounting, insurance, or risk management can substitute for one year of the required experience. Professional experience as described above can substitute on a year-for-year basis for the required education.

c. An individual is in good standing with the Society of Financial Examiners and is certified by that organization to be eligible to hold the title of Certified Financial Examiner.

2. In selecting a person as a reinsurance specialist the Office shall consider the individual’s experience, knowledge, skill, and abilities as they relate to the needs of the examination to be performed. This consideration shall include the individual’s experience with the kind of insurance which is the subject of the examination; knowledge of accounting principles, practices and procedures; ability to prepare financial statements to reflect the reinsurance transactions; ability to provide professional and technical assistance; understanding of risk transfer as defined in the NAIC Examiners Handbook and the NAIC Accounting Practices and Procedures and Annual Statement Instruction Manuals, as adopted in Rule 69O-137.001, F.A.C.; and the ability to evaluate claims experience, both reported and incurred but not reported, relevant to the type of insurance which is the subject of the examination.

(c) For purposes of this subsection, a certified public accountant (CPA) may include an individual holding a CPA designation, a CPA firm or an examination firm that has a CPA in its employment. The individual CPA or firm shall demonstrate competency by education and experience to perform such an examination. Regardless of education or experience, no independent certified public accountant, or actuary, or reinsurance specialist shall be qualified to conduct examinations under this subsection if such person:

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 judgement of conviction has been entered by the court having jurisdiction in such case; or

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

3. Has failed to detect or disclose material information in previous reports filed with this Office or other state officials having jurisdiction or regulatory authority in insurance matters or another state; or

4. Has performed any work for a regulated entity who has had delinquency proceedings initiated against it within three years after said work was performed without adequate explanation to the Office of how such work was not related to the cause of the delinquency proceedings; or

5. Is prohibited under Section 624.310, Florida Statutes, from engaging in insurance related activities in this state.

(d)1. An investment specialist shall be qualified to conduct an examination under this subsection if that contractor can demonstrate competency by education and experience to perform such an examination in that capacity. Competency by education and experience shall be demonstrated if any one of the following is true:

a. An individual has a bachelor’s degree from an accredited college or university and four years of professional experience in the capacity for which the contractor is to perform. A master’s degree from an accredited college or university in accounting, or finance can substitute for one year of the required experience. Professional experience as described above can substitute on a year-for-year basis for the required education.

b. An individual is in good standing with the Society of Financial Examiners and is certified by that organization to be eligible to hold the title of Certified Financial Examiner.

2. In selecting a person as an investment specialist the Office shall consider the individual’s experience, knowledge, skill, and abilities as they relate to the needs of the examination to be performed.

(d) The agreement of the insurer to perform an examination under this subsection is not required if the Office reasonably suspects criminal misconduct on the part of the insurer.

(e)1. An information technology specialist shall be qualified to conduct an examination under this subsection if that contractor can demonstrate competency by education and experience to perform such an examination in that capacity. Competency by education and experience shall be demonstrated if the individual has a bachelor’s degree from an accredited college or university and four years of professional experience in the capacity for which the contractor is to perform. A master’s degree from an accredited college or university in information technology or a similar field can substitute for one year of the required experience. Professional experience as described above can substitute on a year-for-year basis for the required education.

2. In selecting a person as an information technology specialist the Office shall consider the individual’s experience, knowledge, skill, and abilities as they relate to the needs of the examination to be performed.

(e)1. In the event that the Office and the insurer agree to conduct an examination utilizing the services of an independent Certified Public Accountant, an actuary, or a reinsurance specialist, or any combination of these, the Office shall submit a list of three firms in each of the specialties required by the particular circumstances of the examination to be performed (the term “firm” shall also include individuals) acceptable to the Office, from which the insurer shall select the firm or firms to conduct the examination.

2. The acceptability of a firm to the Office shall be determined based on consideration of the firm’s professional competence, objectivity, and cost.

3. Consent of the insurer shall be demonstrated by written confirmation from an officer of that insurer which indicates agreement that an examination be performed by the firm, and acknowledgement that the firm is acceptable to the insurer.

4. All payments for an examination under this subsection shall be made directly to the firm in accordance with the rates and terms agreed to by the Office, the insurer, and the firm performing the examination.

(f) The firm selected by the office to perform the examination shall have no conflicts of interest that might affect its ability to independently perform its responsibilities on the examination. In the event that the examination is conducted without the consent of the insurer, pursuant to Section 624.316(2)(e), Florida Statutes, the insurer must pay all reasonable charges of the examining firm if the examination finds impairment, insolvency (as that term is defined in Section 631.011, Florida Statutes), or criminal misconduct on the part of the insurer. In the event that the examination is conducted without the consent of the insurer and no impairment, insolvency, or criminal misconduct is found, then all reasonable charges of the examining firm shall be borne by the Office.

(g) The rates charged to the insurer being examined under the contract shall be consistent with rates charged by other firms in a similar profession and shall be comparable with the rates charged for comparable examinations.

(h) Contractors may submit a curriculum vitae detailing their experience and qualifying credentials to the Office, as well as a proposed hourly rate for services to be performed. The acceptability of a contractor to the Office shall be determined based on consideration of the firm’s professional competence, objectivity, and that the rates charged are consistent with rates charged by other firms in a similar profession providing comparable services. Once a contractor has been accepted by the Office, they will be placed on a list of eligible examination contractors.

(i) In selecting contractors to conduct a specific examination, the Office shall consider the contractor’s experience, knowledge, skill, and abilities as they relate to the needs of the examination to be performed. This consideration shall include the contractor’s experience with the kind of insurance which is the subject of the examination.

(j) After a contractor has been selected for a specific examination the Office shall enter into a contract with the contractor, detailing the scope of work for the engagement. The contract shall include a provision that the contractor has no conflict of interest that might affect its ability to independently perform its responsibilities.

(k) The contractor shall submit all requests for payment to the Office on a form prescribed by the contract.

(l) Upon receipt and review of the contractor’s request for payment, the Office will invoice the insurer being examined and the insurer shall make payment to the Office pursuant to Section 624.316(2)(e)3., Florida Statutes and Section 624.320(2), Florida Statutes.

(m) Upon receipt of the payment from the insurer being examined, the Office will make payment to the contractor.

Specific Authority 624.308(1), 624.316(2) FS. Law Implemented 624.307(1), 624.316, 624.3161, 624.320, 624.321(1), 624.424 FS. History–New 6-9-93, Amended 11-23-94, 4-4-99, Formerly 4-138.005, Amended_________.

NAME OF PERSON ORIGINATING PROPOSED RULE: Robin Westcott, Office of Insurance Regulation, E-mail [e-mail]
NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Robin Westcott, Office of Insurance Regulation, E-mail [e-mail]
DATE PROPOSED RULE APPROVED BY AGENCY HEAD: May 9, 2007
DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: July 27, 2007