CHAPTER 3.5. ANNUAL AUDITED FINANCIAL REPORTS
IC 27-1-3.5
Chapter 3.5. Annual Audited Financial Reports
IC 27-1-3.5-1
"Commissioner" defined
Sec. 1. As used in this chapter, "commissioner" refers to theinsurance commissioner appointed under IC 27-1-1-2.
As added by P.L.244-1989, SEC.2.
IC 27-1-3.5-2
"Domestic insurer" defined
Sec. 2. (a) As used in this chapter, "domestic insurer" means aninsurer organized under the laws of Indiana.
(b) If a domestic insurer is a member of an "insurance holdingcompany system" (as defined in IC 27-1-23-1), the term "domesticinsurer" also includes:
(1) any person in immediate control of the domestic insurer; and
(2) any affiliate:
(A) in which the domestic insurer has invested; or
(B) that is indebted to the domestic insurer.
As added by P.L.244-1989, SEC.2.
IC 27-1-3.5-3
"Independent auditor" defined
Sec. 3. As used in this chapter, "independent auditor" means acertified public accountant or a certified public accounting firm thatconducts an annual audit of a domestic insurer as required by thischapter.
As added by P.L.244-1989, SEC.2.
IC 27-1-3.5-3.5
"Significant deficiency" defined
Sec. 3.5. As used in this chapter, "significant deficiency" meansa reportable condition described in the Professional Standards of theAmerican Institute of Certified Public Accountants.
As added by P.L.251-1995, SEC.3.
IC 27-1-3.5-4
"Work papers" defined
Sec. 4. (a) As used in this chapter, "work papers" means therecords kept by the independent auditor of the procedures followed,the tests performed, the information obtained, and the conclusionsreached by the independent auditor's audit of the financial statementsof a domestic insurer.
(b) The term includes any audit planning documentation, workprograms, analyses, memoranda, letters of confirmation andrepresentation, abstracts of company documents, and schedules orcommentaries that:
(1) are prepared or obtained by the independent auditor in thecourse of any audit of the financial statements of a domestic
insurer; and
(2) support the independent auditor's opinion on the domesticinsurer's financial statements.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.4.
IC 27-1-3.5-5
Application of chapter; exemptions
Sec. 5. (a) Except as provided in subsections (b) and (c), thischapter applies to all domestic insurers.
(b) A domestic insurer that has:
(1) direct written premiums of less than one million dollars($1,000,000) in any calendar year; and
(2) less than one thousand (1,000) policyholders or certificateholders of directly written policies nationwide at the end of acalendar year;
is exempt from this chapter with respect to that year. However, thecommissioner may require compliance with this chapter upon afinding that compliance with this chapter is necessary for thecommissioner to carry out a statutory responsibility.
(c) A foreign or an alien insurer that files an audited financialreport in another state or country pursuant to that state's or country'srequirement for audited financial reports is exempt, with respect tothe year of that audited financial report, from the requirement to filean audited financial report with the commissioner under this chapter,if:
(1) the commissioner has found the other state's or country'srequirement for audited financial reports to be substantiallysimilar to the requirements of this chapter;
(2) copies of the audited financial report, the report onsignificant deficiencies in internal controls, and the accountant'sletter of qualifications filed with the other state or country arefiled with the commissioner in accordance with the filing datesset forth in sections 8, 12, and 12.5 of this chapter; and
(3) a copy of a notification of an adverse financial conditionreport that is filed with the other state is filed with thecommissioner within the time specified in section 11 of thischapter.
This subsection does not prevent the commissioner from ordering,conducting, or performing examinations of foreign or alien insurersunder the rules, regulations, and practices of the department.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.5.
IC 27-1-3.5-6
Annual audit; filing; time; extension
Sec. 6. (a) A domestic insurer shall have an audit by anindependent auditor every year and shall file an audited financialreport with the commissioner every year before June 1 immediatelyfollowing the December 31 that ends the year reported on in the
financial report. The commissioner may require a domestic insurerto file an audited financial report earlier than June 1 if thecommissioner gives the domestic insurer ninety (90) days advancenotice of the earlier filing date.
(b) An extension of the June 1 filing date may be granted by thecommissioner for thirty (30) days upon a showing by the insurer andits independent auditor of the reasons for requesting the extensionand a determination by the commissioner that there is good cause foran extension. The request for an extension must be submitted inwriting at least ten (10) days before the due date, and must includesufficient detail to permit the commissioner to make an informeddecision with respect to the requested extension.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.6.
IC 27-1-3.5-7
Contents of report
Sec. 7. (a) The annual audited financial report filed by a domesticinsurer under this chapter shall report:
(1) the financial position of the domestic insurer as of the endof the most recently ended calendar year; and
(2) the results of the domestic insurer's operations, cash flow,and changes in capital and surplus for that year;
in conformity with statutory accounting practices prescribed, orotherwise permitted, by the department of insurance.
(b) The financial statements included in the annual auditedfinancial report filed by a domestic insurer under this chapter shallbe examined by an independent auditor. The independent auditorshall conduct its examination of the domestic insurer's financialstatements in accordance with generally accepted auditing standards,and shall consider such other procedures illustrated in the FinancialCondition Examiner's Handbook published by the NationalAssociation of Insurance Commissioners as the independent auditorconsiders necessary.
(c) An annual audited financial report filed by a domestic insurerunder this chapter must include the following:
(1) The report of the insurer's independent auditor.
(2) A balance sheet reporting admitted assets, liabilities, capital,and surplus.
(3) A statement of operations.
(4) A statement of cash flow.
(5) A statement of changes in capital and surplus.
(6) Notes to financial statements. The notes must be thoserequired by the National Association of InsuranceCommissioners' annual statement instructions and any othernotes required by statutory accounting practices, which mustinclude the following:
(A) A reconciliation of differences, if any, between thefinancial statements included in the audited financial reportand the annual statement filed by the insurer under
IC 27-1-20-21, including a written description of the natureof these differences.
(B) A summary of the ownership and relationships of thedomestic insurer and all affiliated companies.
(d) The financial statements included in a domestic insurer'saudited financial report shall be prepared in the same form, and usinglanguage and groupings substantially the same, as the relevantsections of the annual statement of the insurer filed with thecommissioner under IC 27-1-20-21.
(e) The financial statements included in a domestic insurer'saudited financial report must be comparative, presenting the amountsas of December 31 of the year of the report and comparative amountsas of the immediately preceding December 31. However, in the firstyear in which an insurer is required to file an audited financial reportunder this chapter, the comparative data may be omitted.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.7.
IC 27-1-3.5-8
Independent auditor
Sec. 8. (a) A domestic insurer that is required by this chapter tofile annual audited financial reports shall, not more than sixty (60)days after becoming subject to the requirement, register in writingwith the commissioner the name and address of the independentauditor retained by the insurer to conduct the annual audits requiredby this chapter. The domestic insurer shall continuously ensure thatthe information provided to the commissioner under this section isaccurate, and shall inform the commissioner in writing of any changein the identity or address of its independent auditor.
(b) A domestic insurer shall obtain a letter from its independentauditor that:
(1) states that the independent auditor is aware of the provisionsof IC 27 and the administrative rules of the department ofinsurance that relate to auditing, accounting, and financialmatters; and
(2) affirms that the independent auditor will express its opinionon the financial statements of the domestic insurer in the termsof their conformity to the statutory accounting practicesprescribed or otherwise permitted by the department, specifyingsuch exceptions as the independent auditor may believeappropriate.
The domestic insurer shall file a copy of this letter with thecommissioner.
(c) If an independent auditor that audited the most recent financialreport filed by the insurer with the commissioner under this chaptersubsequently ceases to be the independent auditor for the insurer, theinsurer shall:
(1) not more than five (5) business days after the cessation ofthe independent auditor's services, notify the commissioner inwriting of the identity and address of the new independent
auditor;
(2) not more than ten (10) business days after the notificationgiven in subdivision (1), furnish the commissioner with aseparate letter that states whether in the twenty-four (24)months preceding the engagement of the new independentauditor there were any disagreements between the insurer andits former independent auditor on any matter of accountingprinciples or practices, financial statement disclosure, orauditing scope or procedure, which, if not resolved to thesatisfaction of the former independent auditor, would havecaused the former independent auditor to make reference to thesubject matter of the disagreement in the former independentauditor's statement of its opinion on the insurer's financialreport, and, if there was such a disagreement, provides adescription of the disagreement. Disagreements required to bereported under this subdivision include those at the decisionmaking level that were resolved:
(A) to the former accountant's satisfaction; and
(B) not to the former accountant's satisfaction; and
(3) comply with subsection (d).
For the purposes of this subsection, "decision making level" refers tothe personnel of the insurer who are responsible for the presentationof the insurer's financial statements and the personnel of theindependent auditor who are responsible for rendering the opinion ofthe auditor on the insurer's financial report.
(d) A domestic insurer subject to the provisions of subsection (c)shall:
(1) provide its former independent auditor with a copy of theletter furnished to the commissioner under subsection (c)(2);and
(2) request in writing its former independent auditor to furnisha letter addressed to the insurer stating whether the formerindependent auditor agrees with the statements contained in theletter furnished to the commissioner under subsection (c)(2)and, if not, stating the reasons for the former independentauditor's disagreement.
The domestic insurer shall furnish the commissioner with a copy ofany responsive letter it receives from its former independent auditorwithin five (5) business days after the insurer receives the letter.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.8.
IC 27-1-3.5-9
Qualifications of independent auditor
Sec. 9. (a) For the purposes of this chapter, the commissioner maynot recognize as an independent auditor any individual or firm thatis not:
(1) a certified public accountant (if an individual) or made upof certified public accountants (if a firm); or
(2) in good standing with: (A) the American Institute of Certified Public Accountants;and
(B) all of the authorities that license certified publicaccountants and certified public accounting firms in thestates in which the individual or firm is licensed to practice.
(b) A partner or other individual responsible for rendering a reportmay not act in that capacity for more than seven (7) consecutiveyears. An individual who has been responsible for rendering a reportfor seven (7) years is disqualified from acting in that or a similarcapacity for the same company or its insurance subsidiaries oraffiliates for two (2) years. A domestic insurer may apply to thecommissioner and request to be exempted from the seven (7) yearrotation requirement on the basis of unusual circumstances. Thecommissioner may consider the following factors in determining ifrelief should be granted:
(1) The number of partners, expertise of the partners, or numberof insurance clients in the currently registered firm.
(2) The premium volume of the domestic insurer.
(3) The number of jurisdictions in which the domestic insurertransacts business.
(c) The commissioner may not recognize as an independentauditor or accept an annual audited financial report prepared inwhole or part by a person who:
(1) has been convicted of fraud, bribery, a violation of theRacketeer Influenced and Corrupt Organizations Act underfederal law (18 U.S.C. 1961 through 1968) or state law (IC35-45-6) or any dishonest conduct or practices under federal orstate law;
(2) has been found to have violated the insurance law of thisstate with respect to any previous reports submitted under thischapter; or
(3) has demonstrated a pattern or practice of failing to detect ordisclose material information in previous reports filed underthis chapter.
(d) The commissioner may conduct a hearing under IC 4-21.5 todetermine whether an independent auditor engaged by a domesticinsurer is sufficiently independent of that domestic insurer to becapable of exercising independent judgment and expressing anobjective opinion on the financial statements in the annual financialreport filed by the insurer under this chapter. If the commissionerdetermines that the auditor is not sufficiently independent of theinsurer, the commissioner shall require the insurer to replace theauditor with another that is sufficiently independent of the insurer.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.9.
IC 27-1-3.5-10
Consolidated returns
Sec. 10. A domestic insurer may apply in writing to thecommissioner for approval to satisfy the requirements of this chapter
by filing audited consolidated or combined financial statementsinstead of separate annual audited financial statements if the insureris part of a group of insurance companies that utilizes a pooling orone hundred percent (100%) reinsurance agreement that affects thesolvency and integrity of the insurer's reserves and the insurer cedesall of the insurer's direct and assumed business to the pool. If adomestic insurer whose application is approved elects to file aconsolidated return, the insurer shall file, with its financialstatements, a columnar consolidating or combining schedule, whichmust meet the following requirements:
(1) Amounts shown on the consolidated or combined auditedfinancial report shall be shown on the schedule.
(2) Amounts for each insurer subject to this section shall bestated separately.
(3) Noninsurance operations shall be shown on the schedule onan individual basis.
(4) Explanations of consolidating and eliminating entries shallbe included.
(5) A reconciliation shall be included of any differencesbetween the amounts shown in the individual insurer columnsof the schedule and comparable amounts shown on the annualstatements of the insurers.
As added by P.L.244-1989, SEC.2. Amended by P.L.130-1994,SEC.13; P.L.116-1994, SEC.17.
IC 27-1-3.5-11
Report from independent auditor of financial conditionirregularities; subsequent facts
Sec. 11. (a) A domestic insurer required to file annual auditedfinancial reports under this chapter shall require its independentauditor to report in writing to the board of directors or the board ofdirector's audit committee, not more than five (5) business days aftermaking a determination, the independent auditor's determination that:
(1) the domestic insurer has materially misstated to thecommissioner the financial condition of the insurer as of thedate of the balance sheet being examined by the independentauditor; or
(2) the domestic insurer does not meet the minimum capital andsurplus requirements of Indiana as of the date of the balancesheet being examined by the independent auditor.
The domestic insurer who has received a report under this sectionshall forward a copy of the report to the commissioner within five (5)business days after receipt of the report and shall provide theindependent accountant making the report with evidence of the reportbeing furnished to the commissioner. An independent auditor whodoes not receive the evidence that the report was filed with thecommissioner within the required five (5) business days shall furnishthe commissioner a copy of the report within the next five (5)business days. An independent auditor may not be liable to anyperson for a statement made in connection with this subsection, if the
statement is made in good faith compliance with this subsection.
(b) If the independent auditor of a domestic insurer, after thefiling of the insurer's audited financial report under this chapter,becomes aware of facts that, if the independent auditor had beenaware of the facts when writing its report, might have affected theindependent auditor's report that was included in the insurer's auditedfinancial report, the independent auditor shall take such action as isprescribed in the Professional Standards of the American Institute ofCertified Public Accountants.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.10.
IC 27-1-3.5-12
Report describing deficiencies in internal control structure
Sec. 12. (a) A domestic insurer required by this chapter to file anaudited financial report with the commissioner shall also furnish thecommissioner with:
(1) a written report (or a letter on reportable conditions)describing the significant deficiencies in the insurer's internalcontrol structure, if internal control deficiencies were noted bythe domestic insurer's independent auditor in connection withits audit; and
(2) a written discussion of any remedial action taken orproposed in connection with the written report.
(b) The written report and written discussion required undersubsection (a) must be filed not later than sixty (60) days after thefiling of the annual audited financial statements.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.11.
IC 27-1-3.5-12.5
Letter from independent auditor; contents
Sec. 12.5. The independent auditor shall furnish the domesticinsurer, in connection with and for inclusion in the filing of theannual audited financial report, a letter stating the following:
(1) That the independent auditor is independent with respect tothe insurer and conforms to the standards of the independentauditor's profession as contained in the Code of ProfessionalEthics and Pronouncements of the American Institute ofCertified Public Accountants and the rules of ProfessionalConduct of the Indiana State Board of Accountancy.
(2) The:
(A) general background and experience; and
(B) experience in audits of insurers;
of the staff assigned to the audit. The letter must also statewhether each member of the staff is a certified publicaccountant. This subdivision does not prohibit the independentauditor from using the staff considered appropriate where suchuse is consistent with the standards prescribed by generallyaccepted auditing standards. (3) That the independent auditor understands that thecommissioner will be relying on the independent auditor'sannual audited financial report and the independent auditor'sopinion in the report for the monitoring and regulation of thefinancial positions of the insurers.
(4) That the independent auditor consents to the requirementsof section 13 of this chapter and agrees to make available forreview by the commissioner, the commissioner's designee, orthe commissioner's appointed agent, any of the independentauditor's work papers and significant communications.
(5) That the independent auditor is properly licensed by anappropriate state licensing authority and is a member in goodstanding in the American Institute of Certified PublicAccountants.
(6) That the independent auditor is in compliance with therequirements of section 9 of this chapter.
As added by P.L.251-1995, SEC.12.
IC 27-1-3.5-13
Independent audit work papers and communications; review bydepartment examiners
Sec. 13. (a) A domestic insurer required to file an auditedfinancial report under this chapter shall require its independentauditor to make available for review by department examiners:
(1) all work papers prepared in the conduct of the independentauditor's examination; and
(2) any record of significant communications related to theaudit between the independent auditor and the insurer that tookplace at:
(A) the offices of the insurer;
(B) the department;
(C) the offices of the independent auditor; or
(D) any other reasonable place designated by thecommissioner.
The insurer shall require the independent auditor to retain the auditwork papers and communications until the department has filed areport on the examination covering the period of the audit but notlater than seven (7) years after the date of the audit report.
(b) Department examiners, in conducting a review of anindependent auditor's work papers, may make and retain copies ofthe work papers and communications. A review of an independentauditor's work papers and communications shall be considered aninvestigation and all work papers and communications obtained orcopied during the course of that investigation are confidential underIC 27-1-3.1-15.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.13.
IC 27-1-3.5-14
Exemption application; hearing Sec. 14. (a) In response to a written application from a domesticinsurer, the commissioner may grant an exemption from compliancewith this chapter if the commissioner finds, upon review of theapplication, that compliance with this chapter would constitute afinancial or an organizational hardship upon the domestic insurer. Anexemption may be granted at any time for a specified period.
(b) Within ten (10) days after the denial of a domestic insurer'swritten request for an exemption from this chapter, the insurer may,in writing, request a hearing on its application for an exemption. Thehearing shall be held under IC 4-21.5.
As added by P.L.244-1989, SEC.2. Amended by P.L.251-1995,SEC.14.
IC 27-1-3.5-15
Repealed
(Repealed by P.L.251-1995, SEC.22.)
IC 27-1-3.5-16
Penalty for noncompliance
Sec. 16. A domestic insurer that fails to file an audited annualfinancial report before July 1 or any other deadline established by thecommissioner for the insurer under this chapter without havingobtained an extension is subject to a civil penalty of fifty dollars($50) per day until the report is received by the commissioner.
As added by P.L.244-1989, SEC.2.
IC 27-1-3.5-17
Effect of chapter on examinations under IC 27-1-3.1
Sec. 17. This chapter does not prohibit or in any way restrict thecommissioner from ordering, conducting, or performingexaminations of insurers under IC 27-1-3.1.
As added by P.L.244-1989, SEC.2. Amended by P.L.26-1991, SEC.6.
IC 27-1-3.5-18
British or Canadian insurers
Sec. 18. (a) In the case of a British or Canadian insurer, the annualaudited financial report refers to the annual statement of totalbusiness on the form filed by the company with its domiciliarysupervision authority audited by an independent auditor.
(b) For a British or Canadian insurer, the letter required undersection 8 of this chapter shall state that the accountant is aware of therequirement relating to the annual audited statement filed with thecommissioner under section 6 of this chapter and shall affirm that theopinion expressed is in conformity with those requirements.
As added by P.L.251-1995, SEC.15.