Rule 120-2-45-.09. Captive Insurance Company Audits

1. (1) Audit Requirement. Each captive insurance company shall engage an independent certified public accountant authorized by the Commissioner to conduct a comprehensive audit and shall file such audited financial report with the Commissioner on or before June 30th of each year. The annual audit report shall be considered part of the company's annual report of financial condition.

2. (2) Designation of Independent Certified Public Accountant.

   Within ninety (90) days of being licensed in Georgia, a company shall report to the Commissioner the name of the audit partner and certified public accountant that it retained to perform its annual audit.

3. (3) Standards Applicable to Designated Independent Certified Public Accountant.

   The Commissioner will accept an audit from the independent certified public accountant subject to the conditions set forth in Regulation 120-2-60-.07(6).

4. (4) Notification of Adverse Financial Condition.

   A company shall require the certified public accountant to immediately notify in writing an officer and all members of the Board of Directors of the company of any determination by the independent certified public accountant that the company has materially misstated its financial condition in its report to the Commissioner. The certified public accountant shall furnish such notification to the Commissioner within five (5) business days of the delivery of the written notice to Board of Directors.

5. (5) Availability and Maintenance of Working Papers of the Independent Certified Public Accountant.

   1. (a) Each company shall require the independent certified public accountant to make available for review by the Commissioner or his or her appointed agent the work papers prepared in the conduct of the audit of the company. The company shall require that the independent certified public accountant retain the audit work papers for a period of seven (7) years or the period of time covering one (1) year prior to the last examination, or from the date of the organizational examination if no subsequent examination has been completed, whichever period is longer.
   2. (b) The aforementioned review by the Commissioner shall be considered examination work papers and shall be confidential in accordance with O.C.G.A. § 33-41-16(b). The company shall require that the independent certified public accountant provide photocopies or equivalent copy of any of the working papers which the Commissioner considers relevant. Such working papers may be retained by the Commissioner.
   3. (c) "Work Papers" or "Working Papers" as referred to in this rule include, but are not limited to, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of company records or other documents prepared or obtained by the independent certified public accountant and the employees of such in the conduct of their examination of the company.

   4. (d) The lead (or coordinating) audit partner (having primary responsibility for the audit) may not act in that capacity for more than five (5) consecutive years. The person shall be disqualified from acting in that or similar capacity for the same company or its insurance subsidiaries or affiliates for a period of five (5) consecutive years. An insurer may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. This application should be made at least thirty (30) days before the end of the calendar year. The Commissioner may consider the following factors in determining if the relief should be granted:

      1. 1. Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;
      2. 2. Premium volume of the company;
      3. 3. Number of jurisdictions in which the company transacts business;
      4. 4. Types of risks directly written;
      5. 5. Complexity of the company's operations; and
      6. 6. Whether the company is organized as a pure captive.

6. (6) Annual Audit Requirements

   1. (a) Opinion of Independent Certified Public Accountant

      Financial statements furnished pursuant to this Regulation 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 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 company on stationery of the certified public accountant showing the address of issuance, signatures of opining accountants, and shall be dated.

   2. (b) Report of Evaluation of Internal Controls

      1. 1. Every company 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. The review shall be conducted in accordance with generally accepted auditing standards and the report shall be filed with the Commissioner annually along with the audited financial report required by Regulation 120-2-45-.09(1).
      2. 2. An exemption from this evaluation may be granted on a case by case basis upon written request to the Commissioner.

   3. (c) Accountant's Letter

      The certified public accountant shall furnish the company, for inclusion in the filing of the audited annual report, a letter stating:

      1. 1. That the certified public accountant is independent with respect to the company and conforms to the standards of the certified public accountant's profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and pronouncements of the Financial Accounting Standards Board.
      2. 2. The general background and experience of the staff engaged in audit including the experience in auditing captive insurance companies or other insurance companies.
      3. 3. That the certified public accountant understands that the audited annual report and the certified public accountant's opinions thereon will be filed with the Commissioner.
      4. 4. That the certified accountant consents to the requirements of Regulation 120-2-45-.09(5) and that the certified public accountant consents and agrees to make available for review by the Commissioner, the Commissioner's designee or the Commissioner's appointed agent, the work papers as defined therein.
      5. 5. That the certified public accountant is properly licensed by an appropriate state licensing authority.

   4. (d) Financial Statements.

      Financial statements as required under Regulation 120-2-45-.07.

   5. (e) Certification of Loss Reserves and Loss Expense Reserves

      The annual audit shall include an opinion as to the adequacy of the company's loss reserves and loss expense reserves. The individual who certifies as to the adequacy of reserves shall apply, on a form adopted by the Commissioner, for approval by the Commissioner, and 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 his or her competence in loss reserve evaluation to the Commissioner. The certificate of reserves shall be in such form as the Commissioner deems appropriate.

Editor's Note: In accordance with O.C.G.A. Section 50-13-21, the contents of this Rule is not filed with or published by the Secretary of State; only names and designations are filed, printed and distributed. This Regulation is on file in the Office of Commissioner of Insurance and is open for public examination and copying. (See Editor's Note, p. 88.03.)Note: "Editor's Note" rescinded. Eff. October 11, 2015.

Authority: O.C.G.A. § 33-41-23.

History. Original Rule entitled "Security Deposit" f. Feb. 9, 1989; eff. Mar. 1, 1989, as specified by the Agency.

Repealed: New Rule entitled "Captive Insurance Company Audits" adopted. F. Sep. 21, 2015; eff. Oct. 11, 2015.