CurrentNorth Carolina Department of InsurancePolicy 15-B-05

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

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This bulletin communicates reporting requirements under North Carolina's Annual Financial Reporting Law (GS §58-10) for licensed domestic insurers, HMOs, service companies, and authorized self-insurers for workers' compensation, including filing deadlines and required documents for the 2015/2016 reporting cycle.

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 15-B-05

Change TypeAdministrative bulletin (replaces 14-B-08)

Effective DateSep 24, 2015

Next Review Date

Key ActionBy October 1, file required materials including Request for Exemption (if applicable), CPA Designation Letter, and Accountant's Awareness Letter to avoid delinquency.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

June 1, 2016AFR filing deadline

May 21, 2016Audit committee / extension requests

Oct 1, 2015Initial filings due

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CurrentNorth Carolina Department of InsurancePolicy 15-B-05

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 15-B-05 alerts

Get alerted when Policy 15-B-05 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 15-B-05

Change TypeAdministrative bulletin (replaces 14-B-08)

Effective DateSep 24, 2015

Next Review Date

Key ActionBy October 1, file required materials including Request for Exemption (if applicable), CPA Designation Letter, and Accountant's Awareness Letter to avoid delinquency.

SourceLink

POLICY UPDATE CHANGES

No material clinical or coverage changes in this revision.

June 1, 2016AFR filing deadline

May 21, 2016Audit committee / extension requests

Oct 1, 2015Initial filings due

$500MMRIC premium threshold

5 business daysNotify Commissioner

Annual Financial Reporting — Criteria & Deadlines

inv-01: Annual reporting criteria and deadlines

Filing and compliance criteria under the Annual Financial Reporting Law and related GS sections:

Who is subject: Every insurer as defined in GS §58-10-190(8) is subject to the Annual Financial Reporting Law; small insurers may request exemption based on premium and policyholder thresholds.

By October 1, file Request for Exemption (if direct premiums written in NC < $1,000,000 and fewer than 1,000 policyholders), CPA Designation Letter, and Accountant's Awareness Letter (AAL); file requests for exemption from Independence of Services for insurers with direct and assumed premiums < $100,000,000.

By November 30, file Request for Relief from Lead Audit Partner Rotation Requirement if seeking relief from the five-year rotation requirement for the lead/coordinating audit partner.

By May 21, designate an audit committee and file written notification with the Department; requests for 30-day extensions to the June 1 AFR filing date must be received by this date.

By June 1, file the Annual Audited Financial Report (AFR) and two original copies of the Accountant's Letter of Qualifications (ALQ).

By August 1, file two original copies of the Internal Control Letter (communication regarding any unremediated material weaknesses) and, where required, two original copies of the Management's Report of Internal Control over Financial Reporting (MRIC).

CPAs performing audits may not provide specified non-audit services contemporaneously with the audit; limited actuarial and other non-prohibited services may be allowed subject to conditions or audit committee approval; insurers with direct and assumed premiums < $100,000,000 may request an exemption from the Independence of Services requirement.

Lead or coordinating audit partner may not serve more than five consecutive years and is disqualified for five years thereafter; insurers may apply for relief for unusual circumstances with requests due by November 30.

Administrative actions

Delinquency consequences: items not received by due dates will be considered delinquent and may result in actions per GS §58-2-70.
Notification instructions: notifications and requests must be addressed to the Department contact specified to avoid filing delays.

inv-02: Annual Financial Reporting requirements and procedures

Required filings, contents, timelines, and potential exemptions:

All insurers must have an annual audit by an independent CPA and file an AFR on or before June 1 for the year ended December 31 immediately preceding; file two original sets of the AFR.

The accountant shall furnish an ALQ for inclusion in the AFR filing; insurers must file two original copies of the ALQ with the AFR by June 1.

Insurer must file a written communication from the accountant as to any unremediated material weaknesses in internal control within 60 days after the AFR filing; two original copies are due by August 1; if no unremediated weaknesses exist the communication must so state.

Insurers with annual direct written and assumed premiums of $500,000,000 or more must prepare and file two original copies of the MRIC by August 1 along with the internal control communication; the Commissioner may require MRIC for other insurers under specified conditions.

Insurers must designate an audit committee and file written notification with the Department by May 21; the audit committee of an entity that controls an insurer may be deemed the insurer's committee at the election of the controlling person; rescission requires notice within 30 days of rescission.

Filing Codes, Thresholds, and Classification

Administrativemixed

No medical codes referenced; administrative reporting policy.

Filing requirementsmixed

inv-05: Premium thresholds for exemptions — Exemption criteria and related thresholds/conditions

General exemption thresholdInsurers with direct premiums written in NC of less than $1,000,000 in any calendar year and fewer than 1,000 policyholders or certificate holders nationwide may request an exemption from the Annual Financial Reporting Law.

Reinsurance exceptionInsurers with assumed premiums pursuant to contracts of reinsurance of $1,000,000 or more are not eligible for the exemption.

Filing deadline for exemption requestRequest for exemption must be filed with the Commissioner by October 1, 2015.

Commissioner discretionThe Commissioner may deny exemption if compliance is necessary for the Commissioner to carry out statutory responsibilities.

inv-06: MRIC premium threshold — $500,000,000 threshold for MRIC requirement

Notifications, Requests, and Required Provider Actions

Documentation Required

Address notifications and requests to Scott Wicker

All notifications and written requests required by this Bulletin must be addressed to Scott Wicker at the North Carolina Department of Insurance using the Department address provided in the Bulletin to avoid filing delays.

Addressee: Scott Wicker
Use Department address as specified in the Bulletin for filings and requests

Documentation Required

Designate audit committee and file written notification

Designate an audit committee (as defined in GS §58-10-190(3)) and file written notification of the designated audit committee with the Department by no later than May 21, 2016; if the insurer elects to use the audit committee of its controlling entity, the ultimate controlling person must provide written notice to the Commissioner describing the basis for the election. If rescinded, file written notification of the change within 30 days of rescission.

Deadline to file written notification: May 21, 2016

Key Definitions and Required Letters

inv-11: Annual Audited Financial Report (AFR) — the audited financial statements to be filed with the Department, two originals required by June 1.

What to fileAnnual Audited Financial Report (AFR) — audited financial statements reporting the insurer's financial position and results of operations, prepared by an independent CPA.

Number of copiesTwo original sets of the AFR must be filed with the North Carolina Department of Insurance.

Filing deadlineThe AFR and related filings are due by June 1, 2016 (items due date for AFR and ALQ).

Applicable entitiesApplies to every insurer as defined in GS §58-10-190(8); small insurers may request exemption where eligible.

inv-12: CPA Designation Letter — Letter filed with the Commissioner naming the independent CPA retained to conduct the audit (due October 1, 2015).

What it is

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 15-B-05

Change TypeAdministrative bulletin (replaces 14-B-08)

Effective DateSep 24, 2015

Next Review Date

Key ActionBy October 1, file required materials including Request for Exemption (if applicable), CPA Designation Letter, and Accountant's Awareness Letter to avoid delinquency.

SourceLink

On This Page

The Commissioner may grant 30-day extensions to the June 1 AFR filing date for good cause upon written request; extension requests for 2016 must be received by May 21, and any granted extension similarly extends the related MRIC filing.

If an accountant for the immediately preceding filed AFR is dismissed or resigns, the insurer must notify the Commissioner within five business days and furnish a letter within 10 business days describing any disagreements in the prior 24 months and must request a response letter from the former accountant to be furnished to the Commissioner.

Insurers must file any notification received from their accountant that an adverse financial condition is present within five business days of receipt and provide evidence to the accountant that the report was furnished to the Commissioner; if the accountant does not receive evidence, the accountant must file the report to the Commissioner within the next five business days.

The Commissioner may grant exemptions from compliance with any provisions if compliance would constitute financial or organizational hardship; exemptions may be time-limited and may be granted upon written application.

MRIC premium thresholdInsurers with annual direct written and assumed premiums of $500,000,000 or more (excluding certain federal reinsured premiums) must prepare and file a MRIC.

Filing deadline for MRICTwo original copies of the MRIC must be filed with the Commissioner by August 1, 2016, along with the communication of internal control matters.

Commissioner authority to require MRICCommissioner may require MRIC for insurers in a risk‑based capital event or meeting standards for hazardous financial condition under GS §58-30-60(b).

Transition ruleAn insurer that becomes subject to the MRIC threshold has two years following the year the threshold is exceeded to file a report.

Controlling person may elect to use controlling entity's audit committee by written notice describing basis

If rescinded, file notice within 30 days

Prior Authorization

Request 30‑day extension for AFR filing (submit written request)

If seeking a 30‑day extension of the June 1 AFR filing date, submit a written request showing the reasons and evidence of good cause; requests for the June 1, 2016 filing must be received by the Department no later than May 21, 2016. If an AFR filing extension is granted, a similar 30‑day extension applies to the related MRIC filing.

Submit written extension request demonstrating reasons and good cause
Deadline for 2016 extension requests: May 21, 2016
An AFR extension also extends the related MRIC filing by 30 days

Documentation Required

Notify Commissioner of CPA changes and adverse financial condition reports

Notify the Commissioner within five business days if the accountant for the immediately preceding filed AFR is dismissed or resigns; within 10 business days thereafter furnish a separate letter describing any disagreements with the former accountant in the prior 24 months and provide the former accountant’s response letter to the Commissioner. Additionally, file any notification received from an accountant that an adverse financial condition is present within five business days and provide evidence the accountant’s report was furnished to the Commissioner.

Notify Commissioner of CPA dismissal/resignation within five business days
Within 10 business days, furnish a letter stating any disagreements with the former accountant in the prior 24 months
Request and furnish the former accountant's response letter to the Commissioner
File any accountant notification of adverse financial condition within five business days and provide evidence it was furnished to the Commissioner

CPA Designation Letter naming the independent certified public accountant retained to conduct the annual audit.

Filing requirementEach insurer must file the CPA Designation Letter with the Commissioner under GS §58-10-205(a).

DeadlineThe CPA Designation Letter must be filed by no later than October 1, 2015.

Department roleThe Department may disapprove accountants who are not qualified but does not 'approve' appointments; responsibility is limited to disapproval of unqualified accountants.

inv-13: Accountant's Awareness Letter (AAL) — Letter from the accountant affirming awareness of NC insurance accounting laws and intent to express opinion in conformity with statutory accounting practices.

What it isAccountant's Awareness Letter (AAL) affirming the accountant's awareness of North Carolina insurance laws and that the accountant will express an opinion in terms of conformity with statutory accounting practices.

Filing requirementInsurer must obtain the AAL from the accountant and file a copy with the Commissioner pursuant to GS §58-10-205(b).

Deadline and durationThe AAL must be filed by October 1, 2015 and, once filed, remains in effect until there is a change in CPAs.

inv-14: MRIC — Management's Report of Internal Control over Financial Reporting; due August 1, 2016 (two originals).

What it isManagement's Report of Internal Control over Financial Reporting (MRIC) — management's report on internal control as defined in GS §58-10-190.

Who must fileRequired for insurers meeting the $500,000,000 direct written and assumed premium threshold and for insurers the Commissioner directs to file a MRIC.

Filing deadline and copiesTwo original copies of the MRIC must be filed with the Commissioner by August 1, 2016, together with the communication of internal control matters.

Referenced statute for contentRefer to GS §58-10-255 for the MRIC form, content, and required supporting documentation and assertions.

inv-15: Independence of Services — Prohibition on CPAs providing specified non-audit services contemporaneously with the audit (list of disallowed services and principles).

Primary prohibitionA CPA who provides contemporaneous non-audit services listed in GS §58-10-210(g)(1) (e.g., bookkeeping, financial systems design, valuation services, internal audit outsourcing, management functions, broker/dealer or investment banking services, legal/expert services unrelated to the audit) will not be recognized as a qualified independent CPA for the AFR.

Actuarial services exception and conditionsActuarially oriented advisory services that determine amounts recorded in financial statements are generally disallowed, but an accountant's actuary may issue an actuarial opinion only if (a) neither the accountant nor the actuary performed management functions; (b) insurer has competent personnel or a third‑party actuary estimates reserves management takes responsibility for; and (c) the accountant's actuary tests reasonableness after management determines reserves.

Exemption process for smaller insurersInsurers with direct written and assumed premiums under $100,000,000 may request an exemption from the Independence of Services requirement by filing a written statement by October 1, 2015 per GS §58-10-210(h).

Audit committee approvalA qualified CPA may provide other non-audit services not listed in GS §58-10-210(g)(1) only if approved in advance by the audit committee per GS §58-10-210(i).

inv-16: Audit committee — Definition per GS §58-10-190(3).

Definition referenceAudit committee as defined in GS §58-10-190(3).

Designation requirementEvery insurer required to file an AFR shall designate individuals constituting its audit committee; the controlling entity's audit committee may be elected to serve as the insurer's committee.

Notification deadlineWritten notification of the designated audit committee must be filed with the Department by May 21, 2016; rescission notification must be filed within 30 days after rescission.

Statutory referenceRefer to GS §58-10-245 for specific audit committee requirements.

inv-17: ALQ — Accountant's Letter of Qualifications to be furnished by the accountant for inclusion in the AFR filing.

What it isAccountant's Letter of Qualifications (ALQ) — a letter furnished by the accountant for inclusion in the filing of the AFR describing the accountant's qualifications.

Filing requirement and copiesEach insurer must file two original copies of the ALQ with the Commissioner for inclusion in the AFR filing by June 1, 2016.

Statutory basisRequired pursuant to GS §58-10-235 in connection with the annual audited financial report filing.

inv-18: MRIC — Management's Report of Internal Control over Financial Reporting required for insurers meeting the premium threshold or as directed.

Requirement triggerMRIC is required for insurers with annual direct written and assumed premiums of $500,000,000 or more, and may be required by the Commissioner in other risk or hazardous condition circumstances.

Filing timing and copiesTwo original copies of the MRIC must be filed with the Commissioner by August 1, 2016, together with the communication of internal control matters (Internal Control Letter).

Statutory referenceMRIC requirements are set out in GS §58-10-255; refer to that statute for form, content, and supporting documentation and assertions.

Effective date and recurrenceMRIC requirements became effective for reporting periods ending December 31, 2010 and remain in effect each year thereafter; insurers newly subject to the threshold have two years to file following the year exceeded.