PURPOSE: This rule provides interpretations of various terms and provisions used in sections 375.1025—375.1062, RSMo which govern how the financial reports of insurers are to be audited.

Editor’s Note: The secretary of state has determined that the publication of this rule in its entirety would be unduly cumbersome or expensive. The entire text of the material referenced in section (2) of this rule has been filed with the secretary of state. This material may be found at the Office of the Secretary of State or at the headquarters of the agency and is available to any interested person at a cost established by state law.

1. (1) Definitions.

   1. (A) As used in section 375.1037.4(3), RSMo, the phrase “has demonstrated a pattern or practice of failing to detect or disclose material information” shall be deemed to include, but not limited to, any accountant or accounting firm that has failed to detect or disclose an insolvency which is later determined to have existed on the “as of” date of a financial report which the accountant of firm has filed under sections 375.1025— 375.1062, RSMo.
   2. (B) As used in section 375.1032.3(3), RSMo, the term “insignificant” shall mean amounts which, when combined, will not exceed five percent (5%) of the insurer’s total assets.

   3. (C) As used in section 375.1045.1., RSMo, the term “material” as it relates to a misstatement of an insurer’s financial condition shall mean any misstatement of the insurer’s financial condition—

      1. 1. By an amount greater than or equal to

twenty percent ($20%) of the insurer’s capital and surplus; or

1. 2. By any amount where the indepen-

dent certified public accountant determines the misstatement to be material in accordance with SAS No. 47, Audit Risk and Materiality in Conducting an Audit (AU Section 312 of the Professional Standards of the American Institute of Certified Public Accountants.)

1. (D) As used in section 375.1032.2(6)(c), RSMo, the term “significant” shall mean any intercompany transaction or balance involving an amount greater than or equal to five percent ($5%) of the insurer’s capital and surplus. shown on the worksheet on a combined or
2. (E) As provided in section 375.1037.3., individual basis; RSMo, no partner or other person responsible for rendering a report under sections eliminating entries shall be included; and 375.1025—375.1062, RSMo, may act in that any differences between the amounts shown capacity for more than seven (7) consecutive years. For purposes of determining whether a in the individual insurer columns of the workperson is competent under this section, a sheet and comparable amounts shown on the “year” shall be deemed to be that period of Annual Statements of the insurers. time beginning on January 1 and ending on December 31 of a given calendar year, commencing January 1, 1992.

1. (2) Pursuant to section 375.1047, RSMo, each insurer shall furnish the director with a written report prepared by the accountant describing the insurer’s internal control structure noted by the accountant during the audit. SAS No. 60, Communication of Internal Control Structure Matters Noted in an Audit (AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants) requires an accountant to communicate significant deficiencies (known as “reportable conditions”) noted during a financial statement audit to the appropriate parties within an entity. No report under section 375.1047, RSMo, needs to be issued if the accountant does not identify significant deficiencies. If significant deficiencies are noted, the written report shall be filed annually by the insurer with the director within sixty (60) days after the filing of the annual audited financial statements. The insurer shall provide a description of remedial actions taken or proposed to correct significant deficiencies, if those actions are not described in the accountant’s report.

2. (3) An insurer may make written application to the director for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and such insurer cedes all of its direct and assumed business to the pool. In such cases, if approved in writing by the director, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

   1. (A) Amounts shown on the consolidated or combined Audited Financial Report shall be shown on the worksheet;
   2. (B) Amounts for each insurer subject to this section shall be stated separately; 20 CSR 200-1
3. (C) Noninsurance operations may be
4. (D) Explanations of consolidating and
5. (E) A reconciliation shall be included of

AUTHORITY: sections 374.045, 375.1032, 375.1037, 375.1045, 375.013 and 375.1060 RSMo (1994).* Original rule filed Aug. 11, 1992, effective May 6, 1993. Amended: Filed July 3, 1995, effective Feb. 25, 1996. *Original authority: 374.045, RSMo (1967), amended 1993; 375.1032, RSMo (1991), amended 1992; and 375.1037 and 375.1045, RSMo (1991).