CurrentNorth Carolina Department of InsurancePolicy 18-B-10

Reporting Requirements pursuant to North Carolina General Statutes, Part 7, Article 10, Chapter 58 ('Annual Financial Reporting Law')

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Bulletin outlining reporting, filing deadlines, and submission requirements under North Carolina's Annual Financial Reporting Law (GS §58-10) for licensed domestic insurers and certain self-insurers; affects all insurers as defined in GS §58-10-190(8).

Policy Summary

PayerNorth Carolina Department of Insurance

PolicyReporting Requirements pursuant to North Carolina General Statutes, Part 7, Article 10, Chapter 58 ('Annual Financial Reporting Law')

Policy CodePolicy 18-B-10

Change TypeInformational bulletin (no material coverage changes)

Effective DateSep 19, 2018

Next Review Date

Key ActionFile CPA Designation Letter with the name and address of the independent CPA by October 1, 2018.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

Oct 1, 2018CPA/AAL and exemption filings due

Nov 30, 2018Lead partner rotation relief request due

Jun 1, 2019AFR & ALQ filing due

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CurrentNorth Carolina Department of InsurancePolicy 18-B-10

Reporting Requirements pursuant to North Carolina General Statutes, Part 7, Article 10, Chapter 58 ('Annual Financial Reporting Law')

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Sign up for North Carolina Department of Insurance Policy 18-B-10 alerts

Get alerted when Policy 18-B-10 changes without checking for updates manually.

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Policy Summary

PayerNorth Carolina Department of Insurance

PolicyReporting Requirements pursuant to North Carolina General Statutes, Part 7, Article 10, Chapter 58 ('Annual Financial Reporting Law')

Policy CodePolicy 18-B-10

Change TypeInformational bulletin (no material coverage changes)

Effective DateSep 19, 2018

Next Review Date

Key ActionFile CPA Designation Letter with the name and address of the independent CPA by October 1, 2018.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

Oct 1, 2018CPA/AAL and exemption filings due

Nov 30, 2018Lead partner rotation relief request due

Jun 1, 2019AFR & ALQ filing due

AFR extension request due

$500,000,000MRIC premium threshold

5 daysNotify Commissioner of CPA dismissal/resignation

Filing and Reporting Criteria

inv-01: AFR and Independence Requirements

Filing and independence requirements for audited financial reporting

File two original sets of the Audited Financial Statements (AFR) with the Commissioner by June 1, 2019.

Audit must be conducted in accordance with generally accepted auditing standards (see AU-C Section 315) and the independent CPA should obtain an understanding of internal control sufficient to plan the audit.

Accountant must be independent; the Commissioner will not recognize an AFR prepared by an accountant who, contemporaneously with the audit, provides prohibited non-audit services.

Prohibited contemporaneous non-audit services (examples)

Bookkeeping or other services related to the accounting records or financial statements of the insurer.
Financial information systems design and implementation.
Appraisal or valuation services, fairness opinions, or contribution in kind reports.
Actuarially oriented advisory services involving determination of amounts recorded in the financial statements (with limited exceptions).
Internal audit outsourcing services.
Management functions or human resources.
Broker or dealer, investment adviser, or investment banking services.
Legal services or expert services unrelated to the audit.

Insurers with direct written premium and assumed premiums of less than $100,000,000 may request an exemption from the Independence of Services requirement; written statement explaining reasons must be filed by October 1, 2018.

A qualified independent CPA who performs the audit may perform other non-prohibited non-audit services only if approved in advance by the insurer's audit committee.

Insurers otherwise eligible for exemption from the Annual Financial Reporting Law (e.g., small insurers meeting statutory thresholds) may apply for exemption by the deadlines specified in the Bulletin.

inv-02: Annual Financial Reporting filing criteria

Filing and reporting criteria for insurers:

Each insurer must file two original copies of its AFR with the Commissioner by June 1, 2019; refer to GS §58-10-200 for required contents.

Accountant must furnish an Accountant's Letter of Qualifications (ALQ) and each insurer must file two original copies of the ALQ with the AFR by June 1, 2019.

Accountant must prepare a written Internal Control Letter identifying any un-remediated material weaknesses; the letter must be prepared within 60 days after AFR filing and two originals must be filed by no later than August 1, 2019; if no un-remediated weaknesses are noted, the communication must so state.

Insurers with annual direct written and assumed premiums (excluding certain federal-reinsured premiums) of $500,000,000 or more must prepare a Management's Report of the Insurer's Internal Control over Financial Reporting (MRIC) and file two originals by August 1, 2019; the Commissioner may also require MRIC for insurers in certain risk-based capital events or deemed in hazardous financial condition.

If the accountant for the immediately preceding AFR is dismissed or resigns, the insurer must notify the Commissioner within five business days and furnish a separate letter within 10 business days describing any disagreements in the prior 24 months and request a response from the former accountant; submit the former accountant's response to the Commissioner when received.

Required Filings and Thresholds

Required filingsmixedCovered

AFR	Audited Financial Report - two originals required

Small‑insurer exemption thresholds

Direct premium thresholdInsurers with direct premiums written in this State of less than $1,000,000 in any calendar year may request an exemption from the Annual Financial Reporting Law

Policyholder thresholdFewer than 1,000 policyholders or certificate holders of direct written policies nationwide at the end of the calendar year qualifies for the exemption

Assumed premium exceptionInsurers having assumed premiums pursuant to contracts of reinsurance of $1,000,000 or more are not eligible for the small‑insurer exemption

Independence exemption (separate test)Insurers with direct written premium and assumed premiums of less than $100,000,000 may request an exemption from the Independence of Services requirement by filing a written statement by Oct 1, 2018

Premium threshold for MRIC

Required Provider Submissions & Notifications

Documentation Required

File CPA Designation Letter by Oct 1, 2018

Pursuant to GS §58-10-205(a), file a CPA Designation Letter with the Commissioner that includes the name and address of the independent certified public accountant retained to conduct the annual audit by no later than October 1, 2018.

Documentation Required

Obtain and File Accountant Awareness Letter (AAL) by Oct 1, 2018

Obtain an Accountant's Awareness Letter (AAL) from the accountant and file a copy with the Commissioner by no later than October 1, 2018; the AAL remains in effect until there is a change in CPAs.

Prior Authorization

File Exemption Requests by Oct 1, 2018

Key Terms

Audit committee

DefinitionA group of individuals designated to constitute the insurer's audit committee as defined in GS §58-10-190(3)

Controlling entity electionThe audit committee of an entity that controls an insurer may be deemed the insurer's audit committee at the election of the controlling person (written notice to Commissioner required)

Filing requirementWritten notification of the designated audit committee must be filed with the Department by no later than May 21, 2019; if rescinded, notify within 30 days

Insurer (subject to the law)

DefinitionEvery insurer as defined in GS §58-10-190(8) is subject to the Annual Financial Reporting Law

ScopeApplies to licensed domestic insurance companies, HMOs, health/medical/dental service companies, and authorized self-insurers for workers' compensation as noted in Bulletin 18-B-10

Policy Summary

PayerNorth Carolina Department of Insurance

PolicyReporting Requirements pursuant to North Carolina General Statutes, Part 7, Article 10, Chapter 58 ('Annual Financial Reporting Law')

Policy CodePolicy 18-B-10

Change TypeInformational bulletin (no material coverage changes)

Effective DateSep 19, 2018

Next Review Date

Key ActionFile CPA Designation Letter with the name and address of the independent CPA by October 1, 2018.

SourceLink

On This Page

Insurers must file with the Commissioner any notification received from their accountant that an adverse financial condition is present within five business days of receipt; if the accountant does not receive evidence that the insurer filed, the accountant must furnish a copy of its report to the Commissioner within the next five business days.

The Commissioner may grant written exemptions from compliance upon finding financial or organizational hardship; exemptions may be for specified periods and should follow the procedures described in the Bulletin.

MRIC premium threshold

Insurers with annual direct written and assumed premiums of $500,000,000 or more (excluding premiums reinsured with the FCIC and Federal Flood Program) must prepare and file a MRIC

Filing deadline for MRICTwo original copies of the MRIC must be filed with the Commissioner by no later than August 1, 2019

Commissioner authorityThe Commissioner may require MRIC regardless of threshold if insurer is in an RBC level event or meets standards of hazardous financial condition

If eligible for exemption from the Annual Financial Reporting Law, file a written request with the Commissioner by no later than October 1, 2018; insurers with direct premiums written < $1,000,000 and fewer than 1,000 policyholders or certificate holders may seek this exemption. File requests for exemption from the independence-of-services requirement (for insurers with direct + assumed premiums < $100,000,000) by the same date.

Exemption from AFR: insurers with direct premiums < $1,000,000 and <1,000 policyholders — request due Oct 1, 2018 (GS §58-10-185(b)).
Exemption from Independence requirement: insurers with direct + assumed premiums < $100,000,000 — written statement due Oct 1, 2018 (GS §58-10-210(h)).

Prior Authorization

Request Lead Partner Rotation Relief by Nov 30, 2018

If seeking relief from the lead or coordinating audit partner rotation requirement, file a request with the Commissioner describing the unusual circumstances by no later than November 30, 2018; consult GS §58-10-210(d) for required supporting information.

Rotation relief requests must include the additional information required by GS §58-10-210(d)(1) and (2).
Deadline for relief request: November 30, 2018.

Prior Authorization

Submit AFR Extension Request by May 21, 2019

To request an extension of the June 1 AFR filing date, submit a written request showing reasons and good cause to the Commissioner by no later than May 21, 2019; extensions may be granted in 30‑day periods and, if granted, a similar 30‑day extension applies to the MRIC filing.

Extension requests for the June 1, 2019 AFR must be received by May 21, 2019.
If an AFR extension is granted, the related MRIC filing receives the same 30‑day extension.

Documentation Required

Submit Filings to Designated Department Contact; Timely Receipt Required

Submit required filings to the Department using the contact/address provided at the end of the Bulletin; items not received by the specified due dates will be considered delinquent and may prompt actions under GS §58-2-70. Use the address provided at the end of the Bulletin for notifications to avoid processing delays.

Late or untimely filings are considered delinquent and may result in initiation of actions under GS §58-2-70.
Notifications and requests must be addressed to the contact person(s and address) listed at the end of the Bulletin.

Documentation Required

Notify Commissioner Within 5 Business Days of CPA Dismissal/Resignation; Follow Up Within 10 Days

If the accountant for the immediately preceding AFR is dismissed or resigns, notify the Commissioner within five business days and furnish a separate letter within 10 business days describing any disagreements with the former accountant in the prior 24 months; request and submit the former accountant’s response to the Commissioner.

Notify Commissioner within 5 business days of dismissal or resignation of the accountant for the immediately preceding AFR (GS §58-10-205(c)).
Within 10 business days submit a letter describing any disagreements in the prior 24 months and request a response letter from the former accountant; furnish that response to the Commissioner.

Denial Risk

File Accountant’s Notification of Adverse Financial Condition Within 5 Business Days

If you receive a notification from your accountant that an adverse financial condition is present, file that notification with the Commissioner within five business days of receipt; if the accountant does not receive evidence of filing within five business days, the accountant must furnish a copy to the Commissioner within the next five business days.

Insurer must file accountant’s adverse financial condition notification with the Commissioner within 5 business days of receipt (GS §58-10-225).
If the accountant does not receive evidence of filing within five business days, the accountant must file a copy with the Commissioner within the next five business days.

Exemption pathwayEligible small insurers may request exemption under GS §58-10-185(b) by filing with the Commissioner by Oct 1, 2018

Audited Financial Statements (AFR)

DefinitionAudited Financial Statements (AFR) — the audited financial report each insurer must file with the Commissioner as required by GS §58-10-195 and GS §58-10-200

Contents and standardsAFR must include the required contents per GS §58-10-200 and the audit must be conducted in accordance with generally accepted auditing standards (AU-C Section 315)

Filing requirementEach insurer must file two original sets of its AFR with the Commissioner on or before June 1, 2019

Accountant's Letter of Qualifications (ALQ)

DefinitionAccountant's Letter of Qualifications (ALQ) — letter the accountant furnishes in connection with the AFR for inclusion in the filing as required by GS §58-10-235

Filing requirementEach insurer must file two original copies of the ALQ with the Commissioner on or before June 1, 2019

PurposeALQ accompanies the AFR and documents the accountant's qualifications as part of the statutory filing

Management's Report of Internal Control (MRIC)

DefinitionManagement's Report of the Insurer's Internal Control over Financial Reporting (MRIC) — management's report on internal control as defined in GS §58-10-190 and required by GS §58-10-255

Applicability by premiumRequired for insurers with annual direct written and assumed premiums of $500,000,000 or more (exclusions noted for FCIC and Federal Flood Program premiums)

Filing requirementTwo original copies of the MRIC as of the December 31 immediately preceding must be filed with the Commissioner by no later than August 1, 2019

Commissioner discretionCommissioner may require MRIC for insurers in an RBC level event or meeting hazardous financial condition standards regardless of premium threshold

Internal Control Letter

DefinitionInternal Control Letter — written communication from the accountant regarding any un-remediated material weaknesses in internal control over financial reporting noted during the audit (per GS §58-10-230(a))

Preparation timingThe accountant must prepare the Internal Control Letter within 60 days after the filing of the AFR

Filing requirementTwo original copies of the Internal Control Letter must be filed with the Commissioner by no later than August 1, 2019; if no un-remediated weaknesses are noted, the communication must state so

Remediation descriptionThe insurer shall provide a description of remedial actions taken or proposed to correct unremediated material weaknesses if not included in the accountant's communication