(A) Purpose
The purpose of this rule is to establish the
process and procedure for a captive insurance company to appoint an independent
certified public accountant and file audited annual financial statements, an
actuarial opinion on policy reserves, and annual statements with the
superintendent of insurance pursuant to section 3964.07 of the Revised
Code.
(B) Authority
This rule is promulgated pursuant to the
authority vested in the superintendent under section 3964.21 of the Revised
Code.
(C) Definitions
(1) "Audited
Financial Report" means the annual report defined in the items specified
in paragraph (E) of this rule.
(2) "Accountant" and "Independent Certified Public
Accountant" mean 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) "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 captive insurance company's state of
domicile.
(5) "Superintendent" means the superintendent of
insurance of the state of Ohio.
(6) "Work
papers" 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 audit of the
financial statements of a captive insurance company. Work papers may include
audit planning documentation, work programs, analyses, memoranda, letters of
confirmation and representations, abstracts of company documents, and schedules
of commentaries prepared or obtained by the independent certified public
accountant in the course of his or her audit of the financial statements of a
captive insurance company and, which supports his or her opinion
thereof.
(D) Appointment
(1) No later than ninety
days after receiving a certificate of authority to do the business of a captive
insurance company in the state of Ohio, a captive insurance company shall
report to the superintendent of insurance, in writing, the name and address of
the independent certified public accountant retained to conduct the annual
audit required by section 3964.07 of the Revised Code.
(2) If a captive
insurance company terminated the appointment of an independent certified public
accountant retained to conduct the annual audit required by section 3964.07 of
the Revised Code, the captive insurance company shall:
(a) Within ten days of the termination notify the superintendent
of insurance, in writing, of the fact of the termination, and provide a
detailed account as to the reasons for the termination; and
(b) Within thirty days of the termination, report to the
superintendent of insurance, in writing, the name and address of the new
independent certified public account retained by the company.
(E) Annual audit certification
(1) All captive insurance
companies shall have an annual audit by an independent certified public
accountant, and shall file such audited financial reports with the
superintendent of insurance on or before June first for the immediately
preceding year ending December thirty-first. The annual audit report must
include:
(a) A report of an independent certified public
accountant;
(b) Financial statements filed pursuant to this rule shall be
prepared in accordance with generally accepted accounting principles, unless
the superintendent of insurance has required, approved, or accepted in writing
the use of statutory accounting principles or any other comprehensive basis of
accounting;
(c) The financial statements shall be audited by an independent
certified public accountant in accordance with generally accepted auditing
standards as determined by the American institute of certified public
accountants;
(d) The report of the independent certified public accountant
shall cover all years presented; and
(e) The report shall be addressed to the captive insurance
company on stationary of the accountant showing the address of issuance, and
shall be signed and dated.
(2) Captive insurance
companies shall also file a report by the independent certified public
accountant of the evaluation of internal controls.
(a) The report shall include an evaluation of the internal
controls of the captive insurance company relating to the methods and
procedures used in the securing of assets and the reliability of the financial
records, including but not limited to such controls as the system of
authorization and approval and the segregation of duties.
(b) The review shall be conducted in accordance with generally
accepted auditing standards and the report filed with the superintendent of
insurance.
(3) The accountant shall
furnish to the captive insurance company, for inclusion in the filing of the
annual audit report, a letter stating:
(a) That the accountant is independent with respect to the
captive insurance company and conforms to the standards of the profession, as
contained in the "Code of Professional Conduct" of the American
institute of certified public accountants and the "Rules of Professional
Conduct" of the accountancy board of Ohio;
(b) The general background and experience of the staff engaged in
the audit, including experience in auditing captives or other insurance
companies;
(c) That the accountant understands that the annual audit report
and the accountant's opinions thereon will be filed in compliance with
this rule with the department of insurance;
(d) That the accountant consents to the requirements in paragraph
(F) of this rule and that the accountant consents and agrees to make available
for review by the superintendent of insurance, the superintendent of
insurance's designee, or appointed agent, the work papers prepared in the
conduct of the audit and any communications related to the audit between the
accountant and the captive insurance company; and
(e) That the accountant is properly licensed by an appropriate
state licensing authority and the accountant is a member in good standing in
the American institute of certified public accountants.
(4) Audited financial
statements shall include:
(a) Balance sheet reporting assets, liabilities and
equity;
(b) Statements of gain or loss from operations;
(c) Statements of changes in equity;
(d) Statements of cash flow; and
(e) Notes to financial statements shall be those required by
generally accepted accounting principles, or as required by any other
comprehensive basis of accounting in use by the captive insurance company and
approved by the superintendent of insurance, and shall include:
(i) A reconciliation of
differences, if any, between the audited financial report and the annual
statement of its financial condition filed with the superintendent of
insurance;
(ii) A summary of
ownership and relationship of the captive insurance company and all affiliated
companies insured by the captive insurance company; and
(iii) A narrative
explanation of all transactions that involve three per cent or more of a
captive insurance company's assets as of the previous December
thirty-first, and ending balances with the captive insurance
company.
(5) The audited financial
statements shall be comparative, presenting the amounts as of December
thirty-first of the current year and amounts as of the immediately preceding
year ending December thirty-first.
(F) Every captive insurance company required to file an audited
financial report pursuant to this rule shall require the accountant to make
available for review by department examiners the work papers prepared in the
conduct of his or her audit and any communications related to the audit between
the accountant and the captive insurance company. The captive insurance company
shall require that the accountant retain the work papers and communications
until the department has filed a report on examination covering the period of
the audit, but for no longer than seven years from the date of the audit
report.
(G) Conduct of captive insurance company
in connection with the preparation of required reports and
documents
(1) No director, officer,
or member of a captive insurance company shall, directly or
indirectly:
(a) Make or cause to be made a materially false or misleading
statement to an accountant in connection with any audit, review or
communication required under this rule; or
(b) Omit to state, or cause another person to omit to state, any
material fact necessary in order to make statements made, in light of the
circumstances under which the statements were made, not misleading to an
accountant in connection with any audit, review or communication required under
this rule.
(2) No officer or
director of a captive insurance company, or any other person acting under the
direction thereof, shall directly or indirectly take any action to coerce,
manipulate, mislead or fraudulently influence any accountant engaged in the
performance of an audit pursuant to this rule if that person knew or should
have known that the action, if successful, could result in rendering the
captive insurance company's financial statements materially
misleading.
(3) Actions that,
"if successful, could result in rendering the captive insurance
company's financial statements materially misleading" include, but
are not limited to, actions taken at any time with respect to the professional
engagement period to coerce, manipulate, mislead or fraudulently influence an
accountant:
(a) To issue or reissue a report on a captive insurance
company's financial statements that is not warranted in the circumstances
due to material violations of any accounting principles prescribed by the
superintendent, generally accepted auditing standards, or other professional or
regulatory standards;
(b) Not to perform audit, review or other procedures required by
generally accepted auditing standards or other professional
standards;
(c) Not to withdraw an issued report; or
(d) Not to communicate matters to a captive insurance
company's audit committee.
(H) Notwithstanding paragraphs (D), (E),
(F), and (G) of this rule, special purpose financial captive insurance
companies shall be subject to rule 3901-1-50 of the Administrative
Code.
(I) Certification of policy reserves and other
liabilities
(1) The captive insurance
company's annual statement shall be filed with a statement of actuarial
opinion evaluating the captive insurance company's policy reserves and
other liabilities. The individual who prepares the statement of actuarial
opinion shall be a member in good standing of the American academy of
actuaries.
(2) Certification shall
be in the form prescribed in section VM-30 of the current edition of the
"Valuation Manual" published by the "National Association of
Insurance Commissioners."
(J) Annual statement
In preparing the annual statement of financial
condition identified in division (B) of section 3964.07 of the Revised
Code:
(1) Every pure and
protected cell captive insurance company shall complete and file form INS7021
made available on the department website.
(2) Every special purpose
financial captive insurance company shall complete and file its annual
statement using the forms and instructions of the national association of
insurance commissioners for life, accident and health companies using the
accounting method identified under division (C) of section 3964.07 of the
Revised Code. Such filing shall be made directly to the department and may be
filed electronically with an affidavit of electronic filing
authenticity.
(K) Upon written application of a captive insurance
company, the superintendent may grant an exemption from compliance with any
provision of this rule if the superintendent finds, upon review of the
application, that compliance with this rule would constitute a hardship upon
the insurer.
(L) Severability
If any portion of this rule or the application
thereof to any person or circumstance is held invalid, the invalidity does not
affect other provisions or applications of the rule or related rules which can
be given effect without the invalid portion or application, and to this end the
provisions of this rule are severable.
