(1) Every insurer required to file an audited
financial report pursuant to this Chapter that has annual direct written and
assumed premiums, excluding premiums reinsured with the Federal Crop Insurance
Corporation and Federal Flood Program, of five hundred million dollars
($500,000,000) or more shall prepare a report of the insurer's or group of
insurers' internal control over financial reporting, as these terms are defined
in Rule
0780-01-65-.04. The report shall
be filed with the commissioner along with the Communication of Internal Control
Related Matters Noted in an Audit described under Rule
0780-01-65-.12. Management's
Report of Internal Control over Financial Reporting shall be as of December 31
immediately preceding.
(2)
Notwithstanding the premium threshold in Paragraph (1) of this Rule, the
commissioner may require an insurer to file Management's Report of Internal
Control over Financial Reporting if the insurer is in any RBC level event, or
meets any one or more of the standards of an insurer deemed to be in hazardous
financial condition as identified in the insurance code or as specifically
described in Rule 0780-01-66.
(3)
An insurer or a group of insurers that is
(a) Directly subject to Section 404;
(b) Part of a holding company system whose
parent is directly subject to Section 404;
(c) Not directly subject to Section 404 but
is a SOX Compliant Entity; or
(d) A
member of a holding company system whose parent is not directly subject to
Section 404 but is a SOX Compliant Entity;
May file its or its parent's Section 404 Report and an
addendum in satisfaction of this Rule's requirement provided that those
internal controls of the insurer or group of insurers having a material impact
on the preparation of the insurer's or group of insurers' audited statutory
financial statements (those items included in Rule
0780-01-65-.06(2)(b)-(g))
were included in the scope of the Section 404 Report. The addendum shall be a
positive statement by management that there are no material processes with
respect to the preparation of the insurer's or group of insurers' audited
statutory financial statements (those items included in Rule
0780-01-65-.06(2)(b)-(g))
excluded from the Section 404 Report. If there are internal controls of the
insurer or Group of insurers that have a material impact on the preparation of
the insurer's or group of insurers' audited statutory financial statements and
those internal controls were not included in the scope of the Section 404
Report, the insurer or group of insurers may either file (i) a report under
this Rule, or (ii) the Section 404 Report and a report under this Rule for
those internal controls that have a material impact on the preparation of the
insurer's or group of insurers' audited statutory financial statements not
covered by the Section 404 Report.
(4) Management's Report of Internal Control
over Financial Reporting shall include:
(a) A
statement that management is responsible for establishing and maintaining
adequate internal control over financial reporting;
(b) A statement that management has
established internal control over financial reporting and an assertion, to the
best of management's knowledge and belief, after diligent inquiry, as to
whether its internal control over financial reporting is effective to provide
reasonable assurance regarding the reliability of financial statements in
accordance with statutory accounting principles;
(c) A statement that briefly describes the
approach or processes by which management evaluated the effectiveness of its
internal control over financial reporting;
(d) A statement that briefly describes the
scope of work that is included and whether any internal controls were
excluded;
(e) Disclosure of any
unremediated material weaknesses in the internal control over financial
reporting identified by management as of December 31 immediately preceding.
Management is not permitted to conclude that the internal control over
financial reporting is effective to provide reasonable assurance regarding the
reliability of financial statements in accordance with statutory accounting
principles if there is one or more unremediated material weaknesses in its
internal control over financial reporting;
(f) A statement regarding the inherent
limitations of internal control systems; and
(g) Signatures of the chief executive officer
and the chief financial officer (or equivalent position/title).
(5) Management shall document and
make available upon financial condition examination the basis upon which its
assertions, required in Paragraph (4) of this Rule, above, are made. Management
may base its assertions, in part, upon its review, monitoring and testing of
internal controls undertaken in the normal course of its activities.
(a) Management shall have discretion as to
the nature of the internal control framework used, and the nature and extent of
documentation, in order to make its assertion in a cost effective manner and,
as such, may include assembly of or reference to existing
documentation.
(b) Management's
Report on Internal Control over Financial Reporting, required by Paragraph (1)
of this Rule, and any documentation provided in support thereof during the
course of a financial condition examination, shall be kept confidential by the
commissioner.
