PURPOSE: The purpose of this rule is to set forth the financial and reporting requirements, which the director deems necessary for the regulation of captive insurance companies.

1. (1) Annual Reporting Requirements.

   1. (A) An association captive insurance company doing business in this state shall annually submit to the director a report of its financial condition, verified by oath of two (2) of its executive officers. The report shall be that required by section 375.041, RSMo.

   2. (B) A pure or industrial insured captive insurance company doing business in this state shall annually submit to the director a report of its financial condition, verified by oath of two (2) of its executive officers. Except as otherwise approved by the director, the report shall:

      1. 1. Be prepared on the basis of generally

accepted accounting principles consistently applied; and

1. 2. Consist of a:

   1. A. Balance sheet;
   2. B. Statement of gain or loss from

operations; FINANCIAL INSTITUTIONS AND PROFESSIONAL REGISTRATION

1. C. Statement of cash flows;
2. D. Statement of changes in financial

position;

1. E. Statement of changes in capital

paid up, gross paid in and contributed surplus and unassigned funds (surplus); and

1. F. Notes to financial statements. The

notes to financial statements shall be those required by generally accepted accounting principles, and shall include:

1. (I) A summary of ownership and

relationship of the company and all affiliated corporations or companies insured by the captive; and

1. (II) A narrative explanation of all

material transactions and balances with the company.

1. (C) A special purpose life reinsurance captive (SPLRC) doing business in this state shall annually submit on or before March 1 of each year a report of its financial condition, verified by oath of two (2) of its executive officers. The report shall be that required by section 375.041, RSMo.

1. (2) Annual Audit. All companies shall have an annual audit by an independent certified public accountant (CPA), except to the extent waived by the director. The company shall within ninety (90) days of admission apply to the director for approval of the CPA by submitting an application to the director (Form CI-3). Each company shall file an audited financial report with the director on or before June 30 (except for SPLRCs, which shall file on or before May 31) for the year ending December 31 immediately preceding, unless the director has approved a fiscal year ending on a date other than December 31 in which case the audited financial report shall be filed with the director within six (6) months after the end of such approved fiscal year. The annual audit report shall be considered part of the company’s annual report of financial condition except with respect to the date by which it must be filed with the director. The annual audit shall consist of the following:

   1. (A) Opinion of Independent Certified Public Accountant. 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. 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 accountant showing the address of issuance, shall bear original manual signatures and shall be dated;
   2. (B) Report of Evaluation of Internal Controls. 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. The review shall be conducted in accordance with generally accepted auditing standards;

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

      1. 1. That the accountant is independent

with respect to the company and conforms to the standards of the 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;

1. 2. The general background and experi-

ence of the staff engaged in audit including the experience in auditing captives or other insurance companies;

1. 3. That the accountant understands that

the audited annual report and his opinions thereon will be filed in compliance with the rules of this chapter with the director;

1. 4. That the accountant consents to the

requirements of section (3) of this rule and that the accountant consents and agrees to make available for review by the director, his designee or his appointed agent, the work papers as defined in section (3); and

1. 5. That the accountant is properly

licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants;

1. (D) Financial Statements. Statements required shall be as follows:

   1. 1. Balance sheet;
   2. 2. Statement of gain or loss from opera-

tions;

1. 3. Statement of changes in financial

position;

1. 4. Statement of changes in capital paid

up, gross paid in and contributed surplus and unassigned funds (surplus); and

1. 5. Notes to financial statements, which

shall be those required by generally accepted accounting principles, and shall include:

1. A. A reconciliation of differences, if

any, between the audited financial report and the statement or form filed with the director;

1. B. A summary of ownership and rela-

tionship of the company and all affiliated corporations or companies insured by the captive; and

1. C. A narrative explanation of all

material transactions and balances with the company; and

1. (E) Actuarial Certification. 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 be a member in good standing of the American Academy of Actuaries and shall apply to the director for approval by submitting an application to the director (Form CI-4). As to any SPLRC or any company providing life insurance or annuity contracts, such certification shall include the opinion required by section 376.380, RSMo.

1. (3) Availability and Maintenance of Working Papers of the Independent Certified Public Accountant. Each company shall require the independent certified public accountant to make available for review by the director or the director’s appointed agent the work papers prepared in the conduct of the audit of the company. The company shall require that the accountant retain the audit work papers for a period of not less than five (5) years after the period reported upon. The aforementioned review by the director shall be considered an investigation and all working papers obtained during the course of such investigation shall be confidential. The company shall require that the independent certified public accountant provide photocopies of any of the working papers which the director considers relevant. Such working papers may be retained by the department. “Work papers” as referred to in this section include, but are not necessarily limited to, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of company records or other documents prepared or obtained by the accountant and the accountant’s employees in the conduct of their examination of the company.
2. (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 director as required in section 379.1312 or 379.1403, RSMo. The company shall furnish such notification to the director within five (5) working days of receipt thereof.
3. (5) Deposit Requirement. Whenever the director deems that the financial condition of the company warrants additional security, the director may require a company to deposit with the director in a depository chosen by the director cash or securities approved by the director or, alternatively, to furnish the director a clean irrevocable letter of credit issued by a bank chartered by the State of Missouri or a member bank of the Federal Reserve System and approved by the director (Form CI-2). The company may receive interest or dividends from said deposit or exchange the deposits for others of equal value with the approval of the director. If such company discontinues business, the director shall return such deposit only after being satisfied that all obligations of the company have been discharged.

4. (6) Reinsurance.

   1. (A) Any company authorized to do business in this state may take credit for reserves on risks ceded to a reinsurer subject to the following limitations:

      1. 1. No credit shall be allowed for rein-

surance where the reinsurance contract does not result in the complete transfer of the risk or liability to the reinsurer with respect to the portion of the liability purported to be reinsured; and

1. 2. No credit shall be allowed, as an asset

or a deduction from liability, to any ceding insurer for reinsurance unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract reinsured without diminution because of the insolvency of the ceding insurer;

1. (B) Reinsurance under this section shall be effected through a written agreement of reinsurance setting forth the terms, provisions and conditions governing such reinsurance; and
2. (C) The director in his discretion may require that complete copies of all reinsurance treaties and contracts be filed and/or approved by him.

1. (7) Premium Tax.

   1. (A) On or before February 1 of each year, each company shall file a premium tax return (Form CI-5) on a form provided by the director with respect to its direct premiums written and reinsurance assumed premiums written for the year ending the preceding December 31. The tax upon such premiums shall be according to the rates provided by law and shall be subject to the minimum and maximum taxes provided by law. Notwithstanding such minimum and maximum taxes, each company may deduct the application and license and license renewal fees from the taxes payable; provided that such deductions shall be the only deductions from the taxes otherwise payable.
   2. (B) On or before March 31 of each year, the director shall certify to the director of revenue the taxes payable by each company.
   3. (C) On or before April 30 of each year, the director of revenue will notify each company of its assessment of taxes.
   4. (D) Each company shall pay the taxes assessed to the director of revenue on or before May 1.

AUTHORITY: section 374.045, RSMo 2000 and sections 379.1328 and 379.1421, RSMo Supp. 2007.* Original rule filed Nov. 15, 2007, effective June 30, 2008.

*Original authority: 374.045, RSMo 1967, amended 1993, 1995; 379.1328, RSMo 2007; and 379.1421, RSMo 2007.