(a) All captive insurance companies shall have an annual audit by an independent certified public accountant and shall file such audited financial report with the Commissioner on or before June 30 for the prior calendar year.
(b) Captive insurance companies that have received approval to report on other than a calendar year basis pursuant to G.S. 58-10-405 shall file such statements within 180 days after the end of their fiscal year.
(c) Captive insurance companies with less than one million two hundred thousand dollars ($1,200,000) in written premium may make a written request for exemption from the annual audit requirement. Such request must be made at least 90 days prior to the captive insurance company's fiscal year-end or as otherwise required by the Commissioner. Requests will be considered on a case-by-case basis and may be subject to the Commissioner receiving an annual audit of the captive insurance company's parent company in lieu of the annual audit of the captive insurance company.
(d) The annual audit report shall be considered part of the captive insurance company's annual report of financial condition except with respect to the date by which it must be filed with the Commissioner. The annual audit shall consist of the following:
(1) Opinion of independent certified public accountant. - Financial statements furnished pursuant to this section shall be audited by independent certified public accountants in accordance with generally accepted auditing standards as determined by the American Institute of Certified Public Accountants or statutory accounting principles in accordance with the NAIC Accounting Practices and Procedures Manual in effect for the period covered by the report. The opinion of the independent certified public accountant shall cover all years presented. The opinion shall be addressed to the captive insurance company on stationery of the accountant showing the address of issuance and shall be signed and dated.
(2) Report of evaluation of internal controls. - This 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 separation of duties. The review shall be conducted in accordance with generally accepted auditing standards or statutory accounting principles and the report filed with the Commissioner. An exemption from this evaluation may be granted on a case-by-case basis upon written request to the Commissioner.
(3) Accountant's letter of qualifications. - The accountant shall furnish the captive insurance company, for inclusion in the filing of the audited annual 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 Ethics, pronouncements of the American Institute of Certified Public Accountants, and pronouncements of the Financial Accounting Standards Board.
b. The general background and experience of the staff engaged in the audit, including the experience in auditing captives or other insurance companies.
c. That the accountant understands that the audited annual report and the accountant's opinions thereon will be filed in compliance with this section with the Commissioner.
d. That the accountant consents to the requirements of G.S. 58-10-420(b) and (c) and that the accountant consents and agrees to make available for review by the Commissioner, the Commissioner's appointed agent, or other designee the work papers as defined in G.S. 58-10-420(c).
e. That the accountant is properly licensed by an appropriate state licensing authority and that he or she is a member in good standing of the American Institute of Certified Public Accountants.
(4) Financial statements. - Statements required shall be as follows:
a. Balance sheets reporting assets, liabilities, capital, and surplus.
b. Statements of operations.
c. Statements of cash flow.
d. Statements of changes in capital and surplus.
e. Notes to financial statements. The 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 Commissioner, and shall include:
1. A reconciliation of differences, if any, between the audited financial report and the report of its financial condition filed with the Commissioner in accordance with G.S. 58-10-405(b).
2. A summary of ownership and relationship of the captive insurance company and all affiliated corporations or companies insured by the captive insurance company.
3. A narrative explanation of all material transactions and balances with the captive insurance company.
(5) Certification of loss reserves and loss expense reserves. - The annual audit shall be filed with a Statement of Actuarial Opinion evaluating the captive insurance company's loss reserves and loss expense reserves. The individual who prepares the Statement of Actuarial Opinion shall be a Fellow of the Casualty Actuarial Society, a member in good standing of the American Academy of Actuaries, or an individual who has demonstrated competence in loss reserve evaluation to the Commissioner. Certification shall be in such form as the Commissioner deems appropriate. (2013-116, s. 1.)
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Last modified: March 23, 2014