Annual Audited Financial Reports

DEPARTMENT OF FINANCIAL SERVICES
OIR – Insurance Regulation

Rule No.: RULE TITLE
69O-137.002: Annual Audited Financial Reports

NOTICE OF CHANGE

Notice is hereby given that the following changes have been made to the proposed rule in accordance with subparagraph 120.54(3)(d)1., F.S., published in Vol. 35 No. 25, June 26, 2009 issue of the Florida Administrative Weekly.

1) 69O-137.002(3)(o) was added which reads:

“Section 16 Report’ means a Management’s Report of Internal Control over Financial Reporting provided in Section (16) of this rule.”

2) 69O-137.002(4)(b) was rewritten as follows:

“Every insurer required to file an annual Audited Financial Report pursuant to this regulation shall designate a group of individuals as constituting its Audit committee, as defined in Section (3). The Audit committee of an entity that controls an insurer may be deemed to be the insurer’s Audit committee for purposes of this regulation at the election of the controlling person.”

3) 69O-137.002(4)(c) and (d) were stricken.

4) 69O-137.002(5)(b)6. was rewritten as follows:

“Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions (incorporated by reference in subsection 69O-137.001(4), F.A.C.) and the NAIC Accounting Practices and Procedures Manual (incorporated by reference in subsection 69O-137.001(4), F.A.C.) and any other notes required by generally accepted accounting principles and shall also include: a a. A rReconciliation 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.”

5) In 69O-137.002(7)(c)1. the last sentence was rewritten as follows: “The Office shall consider considering the following factors in determining if the relief should be granted:”

6) At the end of 69O-137.002(7)(g)1.g. “or” was added as the final word.

7) At the end of 69O-137.002(7)(g)1.h. “or” was stricken.

8) 69O-137.002(7)(g)1.i. was stricken.

9) 69O-137.002(7)(h) was rewritten as follows:

“Insurers having direct written and assumed premiums of less than $100,000,000 in any calendar year may request an exemption from subparagraph (g)1. The insurer shall file with the Office a written statement discussing the reasons why the insurer should be exempt from these provisions. If the Office finds, upon review of this statement, that compliance with this regulation would constitute an undue financial or organizational hardship upon the insurer, an exemption shall be granted.”

10) 69O-137.002(7)(l)1. was rewritten as follows:

“The Office shall not recognize an independent certified public accountant as qualified for a particular insurer if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that insurer, was employed by the independent certified public accountant and participated in the audit of that insurer during the one-year period preceding the date that the most current statutory opinion is due. This subsection shall only apply to partners and senior managers involved in the audit.”

11) 69O-137.002(9) was rewritten as follows:

“Scope of Audit Examination and Report of Independent Certified Public Accountant. Financial statements furnished pursuant to subsection (5), above, shall be examined by the an independent certified public accountant Certified Public Accountant. The audit examination of the insurer’s financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit, the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU 319, for those insurers required to file a Management’s Report of Internal Control over Financial Reporting pursuant to subsection (16), the independent certified public accountant should consider (as that term is defined in AU Section 120 of the Professional Standards of the AICPA, Defining Professional Requirements in Statements on Auditing Standards) the most recently available report in planning and performing the audit of the statutory financial statements. 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 (incorporated by reference in Rule 69O-138.001, F.A.C.) as the independent Certified Public Accountant deems necessary.”

12) 69O-137.002(11)(a) was rewritten as follows:

“In addition to the annual Audited Financial Report Statement, each insurer shall furnish the Office with a written communication as to any unremediated material weaknesses in its Internal control over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty (60) days after the filing of the annual Audited Financial Report, and shall contain a description of any unremediated material weakness (as the term material weakness is defined by AU Section 325 of the Professional Standards of the AICPA, Communicating Internal Control Related Matters Identified in an Audit) as of December 31 immediately preceding (so as to coincide with the Audited Financial Report discussed in Section (4)) in the insurer’s Internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state. 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 Controls Systems of the insurer shall be filed with the annual Audited Financial Report as required in subsection (4), above.”

13) 69O-137.002(14)(c) was rewritten as follows:

“In order to be considered independent for purposes of this section, a member of the Audit committee may not, other than in his or her capacity as a member of the Audit committee, the board of directors, or any other board committee, accept any consulting, advisory or other compensatory fee from the entity or be an affiliated person of the entity or any subsidiary thereof.”

14) 69O-137.002(14)(f)1. was rewritten as follows:

“The Audit committee shall require the accountant that performs for an insurer any audit required by this regulation to timely report to the Audit committee in accordance with the requirements of AU Section 380 of the Professional Standards of the AICPA, Communication with Audit Committees, including:”

15) In 69O-137.002(14)(g) “RBC” was replaced with “Risk Based Capital.”

16) 69O-137.002(15)(c)1. was rewritten as follows:

“To issue or reissue a report on an insurer’s financial statements that is not warranted in the circumstances (due to material violations of statutory accounting principles prescribed by the Office or generally accepted auditing standards);”

17) 69O-137.002(15)(c)2. was rewritten as follows:

“Not to perform audit, review or other procedures required by generally accepted auditing standards;”

18) 69O-137.002(16)(b) was rewritten as follows:

“Notwithstanding the premium threshold in paragraph (a), the Office shall require an insurer to file Management’s Report of Internal Control over Financial Reporting if the insurer is in any Risk Based Capital level event, or meets any one or more of the standards of an insurer deemed to be in hazardous financial condition. “Hazardous financial condition” shall mean any of the conditions that subject an insurer to suspension or revocation of its certificate of authority as provided in Section 624.418, F.S.”

19) 69O-137.002(16)(d)5. was rewritten as follows:

“Disclosure of any unremediated material weaknesses in the Internal control over financial reporting identified by management as of December 31 immediately preceding, after the effective date of this rule. Management is not permitted to conclude that the Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if there is one or more unremediated material weaknesses in its Internal controls over financial reporting;”

20) 69O-137.002(17)(a) was rewritten as follows:

“Upon written application of any insurer, the Office shall grant an exemption from compliance with any and all provisions of this rule the filing of an annual audited financial report received by the Office by March 1 of the year following the calendar year to which the application applies if the Office finds, upon review of the application, that compliance with this regulation 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 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.”

21) In 69O-137.002(17)(b), the phrase “unless the Office permits otherwise” was stricken.

22) In 69O-137.002(17)(c), the phrase “unless the Office permits otherwise” was stricken.

23) 69O-137.002(17)(d) was rewritten as follows:

“The requirements of paragraph (7)(c) shall be in effect for audits of the year ending December 31, 2010 and thereafter.”

24) 69O-137.002(17)(e) was rewritten as follows:

“The requirements of subsection (14) are to be in effect for audits of the year ending December 31, 2010. An insurer or Group of insurers that is not required to have independent Audit committee members or only a majority of independent Audit committee members (as opposed to a supermajority) because the total written and assumed premium is below the threshold and subsequently becomes subject to one of the independence requirements discussed in this paragraph due to changes in premium shall have one (1) year following the year the threshold is exceeded (but not earlier than January 1, 2010) to comply with the independence requirements discussed in this paragraph. Likewise, an insurer that becomes subject to one of the independence requirements discussed in this paragraph as a result of a business combination shall have one (1) calendar year following the date of acquisition or combination to comply with the independence requirements.”

25) 69O-137.002(20) was added which reads:

“Standards Incorporated by Reference.

(a) The following standards are hereby incorporated by reference:

1. AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit.

2. AU Section 120 of the Professional Standards of the AICPA, Defining Professional Requirements in Statements on Auditing Standards.

3. Volume 1, Section AU 561 of the Professional Standards of the AICPA.

4. AU Section 325 of the Professional Standards of the AICPA, Communicating Internal Control Related Matters Identified in an Audit.

5. AU Section 380 of the Professional Standards of the AICPA, Communication with Audit Committees.

(b) The standards incorporated in this section are available at the American Institute of CPAs (AICPA) website at: http://www.aicpa.org/Publications”.

The remainder of the rule reads as previously published.