1. (a) The purpose of this rule is to improve the State Insurance Department’s surveillance of the financial condition of insurers by requiring:

   1. (1) An annual audit of financial statements reporting the financial position and the results of operations of insurers by independent certified public accountants;
   2. (2) Communication of internal control related matters noted in an audit; and
   3. (3) Management’s report of internal control over financial reporting.

2. (b)

   1. (1) Every insurer, as defined in 23 CAR § 12-102, shall be subject to this rule.
   2. (2) Insurers having direct premiums written in this state of less than one million dollars ($1,000,000) in any calendar year and less than one thousand (1,000) policyholders or certificate holders of direct written policies nationwide at the end of the calendar year shall be exempt from this rule for such year, unless the Insurance Commissioner makes a specific finding that compliance is necessary for the Insurance Commissioner to carry out his or her regulatory responsibilities.
   3. (3) However, insurers having a combined total of direct and assumed premiums pursuant to contracts and/or treaties of reinsurance of one million dollars ($1,000,000) or more will not be so exempt.

3. (c) Foreign or alien insurers filing the audited financial report in another state, pursuant to that state’s requirement for filing of audited financial reports, which has been found by the Insurance Commissioner to be substantially similar to the requirements herein, are exempt from 23 CAR §§ 12-103 – 12-112 if:

   1. (1)

      1. (A) A copy of the audited financial report, communication of internal control related matters noted in an audit, and the accountant’s letter of qualifications that are filed with another state are filed with the Insurance Commissioner in accordance with the filing dates specified in 23 CAR §§ 12-103, 12-110, and 12-111, respectively.
      2. (B) Canadian insurers may submit accountants’ reports as filed with the Office of the Superintendent of Financial Institutions, Canada; and
   2. (2) When applicable, a copy of any notification of adverse financial condition report filed with another state is filed with the Insurance Commissioner within the time specified in 23 CAR § 12-109.
4. (d) Foreign or alien insurers required to file management’s report of internal control over financial reporting in another state are exempt from filing the report in this state provided the other state has substantially similar reporting requirements and the report is filed with the commissioner of the other state within the time specified.

5. (e) This rule shall not prohibit, preclude, or in any way limit the Insurance Commissioner from ordering, conducting, or performing examinations of insurers under the:

   1. (1) Rules of the department;
   2. (2) Provisions of the Arkansas Insurance Code; and
   3. (3) Practices and procedures of the department.

Codification Notes: Arkansas Insurance Code was enacted by Acts 1959, No. 148.