(a)

1. (1) All companies shall:

   1. (A) Have an annual audit by an independent certified public accountant authorized by the Insurance Commissioner; and
   2. (B) File such audited financial report with the commissioner on or before June 30 for the year ending December 31 immediately preceding.
2. (2) The annual audit shall be on the same accounting basis as the annual statement.

(c) The annual audit shall consist of the following:

1. (1) Opinion of independent certified public accountant.

   1. (A) Financial statements furnished pursuant to this section shall be examined by independent certified public accountants in accordance with generally accepted auditing standards as determined by the American Institute of Certified Public Accountants.
   2. (B) The opinion of the independent certified public accountant shall cover all years presented.
   3. (C) The opinion shall:

(i) Be addressed to the company on stationery of the accountant showing the address of issuance;

1. (ii) Bear original manual signatures; and

   1. (iii) Be dated;

2. (2) Report of evaluation of internal controls.

   1. (A) This report shall include an evaluation of the internal controls of the 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.
   2. (B) The review shall be conducted in accordance with generally accepted auditing standards, and the report shall be filed with the commissioner;

3. (3) Accountant's letter. The accountant shall furnish the company, for inclusion in the filing of the audited annual report, a letter stating:

   1. (A) That he or she is independent with respect to the company and conforms to the standards of his or her profession as contained in the:

      1. (i) Code of Professional Conduct and pronouncements of the American Institute of Certified Public Accountants; and
      2. (ii) Pronouncements of the Financial Accounting Standards Board;
   2. (B) The general background and experience of the staff engaged in the audit, including their experience in auditing insurance companies;
   3. (C) That the accountant understands that the audited annual report and his or her opinions thereon will be filed in compliance with this part with the State Insurance Department;

   4. (D) That the accountant:

      1. (i) Consents to the requirements of 23 CAR § 29-106; and
      2. (ii) Consents and agrees to make available for review by the commissioner or his or her appointed agent the work papers as defined in 23 CAR § 29-106(c); and
   5. (E) That the accountant is properly licensed by an appropriate state licensing authority and that he or she is a member in good standing with the American Institute of Certified Public Accountants;

4. (4) Financial statements.

   1. (A) The financial statements required shall be as follows:

      1. (i) Balance sheet;
      2. (ii) Statement of gain or loss from operations;
      3. (iii) Statement of changes in financial position, if appropriate;
      4. (iv) Statement of cash flow;
      5. (v) Statement of changes in capital paid up, gross paid in, and contributed surplus and unassigned funds (surplus); and
      6. (vi) Notes to financial statements.

   2. (B) The notes to financial statements shall be those required by the accounting principles used in the annual statement and shall include:

      1. (i) A reconciliation of differences, if any, between the audited financial report and the statement or form filed with the commissioner;
      2. (ii) A summary of ownership and relationship of the company and all affiliated corporations or companies insured by the captive; and
      3. (iii)

(b) (b) For purposes of this provision, no transaction shall be deemed material unless it involves three percent (3%) or more of a company's admitted assets as of the December 31 next preceding; and

1. (5) Certification of loss reserves and loss expense reserves.

   1. (A) The annual audit shall include an opinion as to the adequacy of the company's loss reserves and loss expense reserves.

   2. (B) The individual who certifies as to the adequacy of reserves shall be:

      1. (i) Approved by the commissioner; and
      2. (ii) A fellow of the Casualty Actuarial Society or a member in good standing of the American Academy of Actuaries.
   3. (C) Certification shall be in such form as the commissioner deems appropriate.