Ohio Administrative Code
Title 3901 - Department of Insurance
Chapter 3901-11 - Captive Insurance Companies
Section 3901-11-03 - Auditor appointment, audited financial statements, actuarial opinion, and annual statements
Universal Citation: OH Admin Code 3901-11-03
Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to establish the process and procedure for a captive insurance company to appoint an independent certified public accountant and file audited annual financial statements, an actuarial opinion on policy reserves, and annual statements with the superintendent of insurance pursuant to section 3964.07 of the Revised Code.
(B) Authority
This rule is promulgated pursuant to the authority vested in the superintendent under section 3964.21 of the Revised Code.
(C) Definitions
(1) "Audited Financial Report" means the
annual report defined in the items specified in paragraph (E) of this
rule.
(2) "Accountant" and
"Independent Certified Public Accountant" mean an independent certified public
accountant or accounting firm, as defined by the general standards of the
"American Institute of Certified Public Accountants," in good standing with the
"American Institute of Certified Public Accountants" and in all states in which
it is licensed to practice; for Canadian and British companies, it means a
Canadian-chartered or British-chartered accountant.
(3) "Department" means the department of
insurance.
(4) "Statutory
accounting practices" has the meaning defined in the current editions of
"Annual Statement Instructions" and the "Accounting Practices and Procedures
Manual" published by the "National Association of Insurance Commissioners," or
as otherwise prescribed by the insurance department of the captive insurance
company's state of domicile.
(5)
"Superintendent" means the superintendent of insurance of the state of
Ohio.
(6) "Work papers" means the
records kept by an independent certified public accountant of the procedures
followed, the tests performed, the information obtained, and the conclusions
reached pertinent to his or her audit of the financial statements of a captive
insurance company. Work papers may include audit planning documentation, work
programs, analyses, memoranda, letters of confirmation and representations,
abstracts of company documents, and schedules of commentaries prepared or
obtained by the independent certified public accountant in the course of his or
her audit of the financial statements of a captive insurance company and, which
supports his or her opinion thereof.
(D) Appointment
(1) No later than ninety days after receiving
a certificate of authority to do the business of a captive insurance company in
the state of Ohio, a captive insurance company shall report to the
superintendent of insurance, in writing, the name and address of the
independent certified public accountant retained to conduct the annual audit
required by section 3964.07 of the Revised
Code.
(2) If a captive insurance
company terminated the appointment of an independent certified public
accountant retained to conduct the annual audit required by section
3964.07 of the Revised Code, the
captive insurance company shall:
(a) Within
ten days of the termination notify the superintendent of insurance, in writing,
of the fact of the termination, and a detailed account as to the reasons for
the termination; and
(b) Within
thirty days of the termination, report to the superintendent of insurance, in
writing, the name and address of the new independent certified public account
retained by the company.
(E) Annual audit certification
(1) All captive insurance companies shall
have an annual audit by an independent certified public accountant, and shall
file such audited financial reports with the superintendent of insurance on or
before June first for the immediately preceding year ending December
thirty-first. The annual audit report must include:
(a) A report of an independent certified
public accountant;
(b) Financial
statements filed pursuant to this rule shall be prepared in accordance with
generally accepted accounting principles, unless the superintendent of
insurance has required, approved, or accepted in writing the use of statutory
accounting principles or any other comprehensive basis of accounting;
(c) The financial statements shall be audited
by an independent certified public accountant in accordance with generally
accepted auditing standards as determined by the American institute of
certified public accountants;
(d)
The report of the independent certified public accountant shall cover all years
presented; and
(e) The report shall
be addressed to the captive insurance company on stationary of the accountant
showing the address of issuance, and shall be signed and dated.
(2) Captive insurance companies
shall also file a report by the independent certified public accountant of the
evaluation of internal controls.
(a) The
report shall include an evaluation of the internal controls of the captive
insurance 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
segregation of duties.
(b) The
review shall be conducted in accordance with generally accepted auditing
standards and the report filed with the superintendent of insurance.
(3) The accountant shall furnish
the captive insurance company, for inclusion in the filing of the annual audit
report, a letter stating:
(a) That the
accountant is independent with respect to the captive insurance company and
conforms to the standards of the profession, as contained in the "Code of
Professional Conduct" of the American institute of certified public accountants
and the "Rules of Professional Conduct" of the accountancy board of
Ohio;
(b) The general background
and experience of the staff engaged in the audit, including experience in
auditing captives or other insurance companies;
(c) That the accountant understands that the
annual audit report and the accountant's opinions thereon will be filed in
compliance with this rule with the department of insurance;
(d) That the accountant consents to the
requirements in paragraph (F) of this rule and that the accountant consents and
agrees to make available for review by the superintendent of insurance, the
superintendent of insurance's designee or appointed agent, the work papers
prepared in the conduct of the audit and any communications related to the
audit between the accountant and the captive insurance company; and
(e) That the accountant is properly licensed
by an appropriate state licensing authority and the accountant is a member in
good standing in the American institute of certified public
accountants.
(4) Audited
financial statements shall include:
(a)
Balance sheet reporting assets, liabilities and equity;
(b) Statements of gain or loss from
operations;
(c) Statements of
changes in equity;
(d) Statements
of cash flow; and
(e) Notes to
financial statements shall be those required by generally accepted accounting
principles, or as required by any other comprehensive basis of accounting in
use by the captive insurance company and approved by the superintendent of
insurance, and shall include:
(i) A
reconciliation of differences, if any, between the audited financial report and
the annual statement of its financial condition filed with the superintendent
of insurance;
(ii) A summary of
ownership and relationship of the captive insurance company and all affiliated
companies insured by the captive insurance company; and
(iii) A narrative explanation of all
transactions that involve three per cent or more of a captive insurance
company's assets as of the previous December thirty-first, and ending balances
with the captive insurance company.
(5) The audited financial statements shall be
comparative, presenting the amounts as of December thirty-first of the current
year and amounts as of the immediately preceding year ending December
thirty-first. (However, in the first year in which an insurer is required to
file an audited financial report, the comparative data may be omitted); and
amounts may be rounded to the nearest thousand dollars.
(F) Every captive insurance company required to file an audited financial report pursuant to this rule shall require the accountant to make available for review by department examiners the work papers prepared in the conduct of his or her audit and any communications related to the audit between the accountant and the captive insurance company, at the offices of the captive insurance company, at the department, or at any other reasonable place designated by the superintendent of insurance. The captive insurance company shall require that the accountant retain the work papers and communications until the department has filed a report on examination covering the period of the audit, but for no longer than seven years from the date of the audit report.
(G) Conduct of captive insurance company in connection with the preparation of required reports and documents
(1) No director,
officer, or member of a captive insurance company shall, directly or
indirectly:
(a) Make or cause to be made a
materially false or misleading statement to an accountant in connection with
any audit, review or communication required under this rule; or
(b) Omit to state, or cause another person to
omit to state, any material fact necessary in order to make statements made, in
light of the circumstances under which the statements were made, not misleading
to an accountant in connection with any audit, review or communication required
under this rule.
(2) No
officer or director of a captive insurance company, or any other person acting
under the direction thereof, shall directly or indirectly take any action to
coerce, manipulate, mislead or fraudulently influence any accountant engaged in
the performance of an audit pursuant to this rule if that person knew or should
have known that the action, if successful, could result in rendering the
captive insurance company's financial statements materially
misleading.
(3) Actions that, "if
successful, could result in rendering the captive insurance company's financial
statements materially misleading" include, but are not limited to, actions
taken at any time with respect to the professional engagement period to coerce,
manipulate, mislead or fraudulently influence an accountant:
(a) To issue or reissue a report on a captive
insurance company's financial statements that is not warranted in the
circumstances (due to material violations of any accounting principles
prescribed by the superintendent, generally accepted auditing standards, or
other professional or regulatory standards);
(b) Not to perform audit, review or other
procedures required by generally accepted auditing standards or other
professional standards;
(c) Not to
withdraw an issued report; or
(d)
Not to communicate matters to a captive insurance company's audit
committee.
(H) Notwithstanding paragraphs (D), (E), (F), and (G) of this rule, special purpose financial captive insurance companies shall be subject to the requirements of rule 3901-1-50 of the Administrative Code.
(I) Certification of policy reserves and other liabilities
(1) The captive insurance company's annual
statement shall be filed with a statement of actuarial opinion evaluating the
captive insurance company's policy reserves and other liabilities. The
individual who prepares the statement of actuarial opinion shall be a member in
good standing of the American academy of actuaries.
(2) Certification shall be in the form
prescribed in section VM-30 of the
current edition of the "Valuation Manual" published by the "National
Association of Insurance Commissioners."
(J) Annual statement
In preparing the annual statement of financial condition as required by division (B) of section 3964.07 of the Revised Code:
(1) Every pure and protected
cell captive insurance company shall complete and file form INS7021 made
available on the department website.
(2) Every special purpose financial captive
insurance company shall complete and file its annual statement using the forms
and instructions of the national association of insurance commissioners for
life, accident and health companies using the accounting method identified
under division (C) of section
3964.07 of the Revised Code.
Such filing shall be made directly to the department and may be filed
electronically with an affidavit of electronic filing
authenticity.
(K) Severability
If any paragraph, term or provision of this rule is adjudged invalid for any reason, the judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, but the remaining paragraphs, terms and provisions shall be and continue in full force and effect.
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