Chapter Ins 50

Ins 50.05 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 08-053: am. (title) and (3), cr. (5) Register December 2008 No. 636, eff. 1-1-09.

Ins 50.06 Ins 50.06 Contents of annual audited financial report. The annual audited financial report required under s. Ins 50.05 shall comply with all of the following:

Ins 50.06(1) (1) Report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the department of insurance, or equivalent agency, of the state of domicile, or, for a domestic insurer, in conformity with accounting practices prescribed or permitted in annual statements filed with the commissioner, as provided under s. Ins 7.02.

Ins 50.06(2) (2) Include all of the following:

Ins 50.06(2)(a) (a) The report of the independent certified public accountant.

Ins 50.06(2)(b) (b) A balance sheet reporting admitted assets, liabilities, capital and surplus.

Ins 50.06(2)(c) (c) A statement of operations.

Ins 50.06(2)(d) (d) A statement of cash flows.

Ins 50.06(2)(e) (e) A statement of changes in capital and surplus.

Ins 50.06(2)(f) (f) Notes to financial statements. These notes shall be those required by the appropriate national association of insurance commissioners’ annual statement instructions and accounting practices and procedures manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to subch. II with a written description of the nature of these differences.

Ins 50.06(3) (3) Include financial statements prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner. The financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31, except in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

Ins 50.06 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 01-050: renum. (2) (f) (intro.) and am., r. (2) (f) 1. and 2., Register October 2001 No. 550, eff. 11-1-01.

Ins 50.07 Ins 50.07 Designation of independent certified public accountant.

Ins 50.07(1) (1) An insurer shall, within 60 days after the insurer becomes subject to this subchapter:

Ins 50.07(1)(a) (a) Provide the commissioner in writing the name and address of the independent certified public accountant retained to conduct the annual audit required by this subchapter.

Ins 50.07(1)(b) (b) File with the commissioner a copy of the letter required to be obtained under sub. (3).

Ins 50.07(2) (2) Insurers not retaining an independent certified public accountant on the effective date of this rule shall register the name and address of their retained independent certified public accountant not less than 6 months before the date when the first audited financial report is to be filed.

Ins 50.07(3) (3) An insurer shall obtain a letter from the independent certified public accountant it retains to conduct the annual audit required by this subchapter. The letter shall state that the independent certified public accountant:

Ins 50.07(3)(a) (a) Is aware of the provisions of the insurance code and the rules and regulations of the insurance department or equivalent agency of the state of domicile of the insurer that relate to accounting and financial matters of insurers; and

Ins 50.07(3)(b) (b) Will express an opinion on whether the financial statements conform to the statutory accounting practices prescribed or otherwise permitted by that department or equivalent agency and will specify exceptions as appropriate.

Ins 50.07(4) (4) If an independent certified public accountant for the immediately preceding filed audited financial report of an insurer is dismissed or resigns, the insurer shall comply with all of the following:

Ins 50.07(4)(a) (a) The insurer shall within 5 business days notify the commissioner of the dismissal or resignation.

Ins 50.07(4)(b) (b) The insurer shall within 15 business days furnish the commissioner with a letter which clearly states that there was no disagreement required to be disclosed under this paragraph or which describes any disagreement between the insurer and the independent certified public accountant in the 24 months preceding the dismissal or resignation, which:

Ins 50.07(4)(b)1. 1. Was on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; and

Ins 50.07(4)(b)2. 2. Would require the independent certified public accountant to make reference to the subject matter of the disagreement in connection with the opinion required under s. Ins 50.06. The requirement to provide a description applies regardless of whether the disagreement was resolved or whether the former independent certified public accountant was satisfied with the resolution.

Ins 50.07(4)(c) (c) The insurer shall within 15 business days furnish the commissioner with a letter from the independent certified public accountant addressed to the insurer stating whether the independent certified public accountant agrees with the statements contained in the insurer’s letter required under par. (b) and, if not, stating the reasons why not.

Ins 50.07 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93.

Ins 50.08 Ins 50.08 Qualifications of independent certified public accountants.

Ins 50.08(1) (1) The commissioner may rule that an accountant or accounting firm is not qualified for purposes of expressing an opinion on the financial statements in the annual audited financial report required under this subchapter and prohibit insurers from retaining the accountant or an accounting firm, and require insurers to replace the accountant or accounting firm, if the commissioner finds there is cause, including, but not limited to, a finding that the accountant or accounting firm:

Ins 50.08(1)(a) (a) Is not in good standing with the American institute of certified public accountants and in all states in which the accountant or accounting firm is, or is required to be, licensed to practice, or, for a Canadian or British company, that it is not a chartered accountant;

Ins 50.08(1)(am) (am) Has either directly or indirectly entered into an agreement of indemnification with respect to the audit of the insurer;

Ins 50.08(1)(b) (b) Has not conformed to the standards of the accounting profession as contained in the code of professional ethics of the American institute of certified public accountants and rules and regulations and code of ethics and rules of professional conduct of the accounting examining board, or a similar code;

Ins 50.08(1)(c) (c) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 USC 1961 to 1968, or any dishonest conduct or practices under federal or state law;

Ins 50.08(1)(d) (d) Has been found to have violated the insurance laws or rules of this state; or

Ins 50.08(1)(e) (e) Has demonstrated a pattern or practice of failing to detect or disclose material information in financial reports.

Ins 50.08(2) (2) After December 31, 1994, and prior to January 1, 2010, no accounting firm partner or other person responsible for rendering a report required of an independent certified public accountant may act in that capacity for more than 7 consecutive years. Following any period of service such a person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 2 years. Effective January 1, 2010, the lead or coordinating audit partner having primary responsibility for the audit may not act in that capacity for more than 5 consecutive years, including consecutive years immediately preceding January 1, 2010, and shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 5 consecutive years. An insurer may make application to the commissioner for relief from the rotation requirement on the basis of unusual circumstances. The application should be made at least thirty days before the end of the calendar year. Factors the commissioner may consider in determining if the relief should be granted include, but are not limited to:

Ins 50.08(2)(a) (a) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

Ins 50.08(2)(b) (b) Premium volume of the insurer; or

Ins 50.08(2)(c) (c) Number of jurisdictions in which the insurer transacts business.

Ins 50.08(3) (3) The insurer shall file with its annual statement filing the approval for relief from sub. (2) with the states that it is licensed in or doing business in and with the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

Ins 50.08(4) (4) 

Ins 50.08(4)(a) (a) The commissioner shall not recognize as a qualified independent certified public accountant a person who, or accept an annual audited financial report prepared in whole or in part by a person who, provides to an insurer, contemporaneously with the audit, the following non-audit services:

Ins 50.08(4)(a)1. 1. Bookkeeping or other services related to the accounting records or financial statements of the insurer.

Ins 50.08(4)(a)2. 2. Financial information systems design and implementation.

Ins 50.08(4)(a)3. 3. Appraisal or valuation services, fairness opinions, or contribution in-kind reports.

Ins 50.08(4)(a)4. 4. Actuarially-oriented advisory services involving the determination of amounts reported in the financial statements. The accountant may assist an insurer in understanding the methods, assumptions and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the insurer’s financial statements. An accountant’s actuary may also issue an actuarial opinion or certification “opinion” on an insurer’s reserves if the following conditions have been met:

Ins 50.08(4)(a)4.a. a. Neither the accountant nor the accountant’s actuary has performed any management functions or made any management decisions;

Ins 50.08(4)(a)4.b. b. The insurer has competent personnel, or engages a third party actuary, to estimate the reserves for which management takes responsibility; and

Ins 50.08(4)(a)4.c. c. The accountant’s actuary tests the reasonableness of the reserves after the insurer’s management has determined the amount of the reserves;

Ins 50.08(4)(a)5. 5. Internal audit outsourcing services.

Ins 50.08(4)(a)6. 6. Management functions or human resources.

Ins 50.08(4)(a)7. 7. Broker or dealer, investment advisor, or investment banking services.

Ins 50.08(4)(a)8. 8. Legal services or expert services unrelated to the audit.

Ins 50.08(4)(a)9. 9. Any other services that the commissioner determines are impermissible. The commissioner may consider utilizing the guidance provided in the Securities and Exchange Commission Final Rule No. 33-8183, Strengthening the Commission’s Requirements Regarding Auditor Independence, adopted January 28, 2003, in order to evaluate whether the provision of such services impairs the independence of the accountant.

Ins 50.08(4)(b) (b) In general, the principles of independence with respect to services provided by the qualified independent certified public accountant are largely predicated on three basic principles, violations of which would impair the accountant’s independence. The principles are that the accountant cannot function in the role of management, cannot audit the accountant’s own work, and cannot serve in an advocacy role for the insurer.

Ins 50.08(5) (5) Insurers having direct written and assumed premiums of less than $ 100,000,000 in any calendar year may request an exemption from sub. (4) (a). The insurer shall file with the commissioner a written statement discussing the reasons why the insurer should be exempt from the provisions. If the commissioner finds upon review of the statement that compliance with sub. (4) (a) would constitute a financial or organizational hardship upon the insurer, an exemption may be granted.

Ins 50.08(6) (6) A qualified independent certified public accountant who performs the audit may engage in other non-audit services, including tax services, that are not described in sub. (4) (a) or that do not conflict with sub. (4) (b), only if the activity is approved in advance by the audit committee, in accordance with sub. (7), provided that the audit committee is in compliance with the Securities and Exchange Commission Final Rule 33-8183, Strengthening the Commission’s Requirements Regarding Auditor Independence, adopted January 28, 2003.

Ins 50.08(7) (7) All auditing services and non-audit services provided to an insurer by the qualified independent certified public accountant of the insurer shall be preapproved by the audit committee. The preapproval requirement is waived with respect to non-audit services if the insurer is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity or:

Ins 50.08(7)(a) (a) The aggregate amount of all such non-audit services provided to the insurer constitutes not more than five percent (5%) of the total amount of fees paid by the insurer to its qualified independent certified public accountant during the fiscal year in which the non-audit services are provided;

Ins 50.08(7)(b) (b) The services were not recognized by the insurer at the time of the engagement to be non-audit services; and

Ins 50.08(7)(c) (c) The services are promptly brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee or by one or more members of the audit committee who are members of the board of directors to whom authority to grant the approvals has been delegated by the audit committee.

Ins 50.08(8) (8) The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by sub. (7). The decisions of any member to whom the authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.

Ins 50.08(9) (9) 

Ins 50.08(9)(a) (a) The commissioner shall not recognize an independent certified public accountant as qualified for a particular insurer if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for the insurer, was employed by the independent certified public accountant and participated in the audit of the insurer during the one-year period preceding the date that the most current statutory opinion is due. This paragraph shall only apply to partners and senior managers involved in the audit. An insurer may make application to the commissioner for relief from the requirement of this paragraph on the basis of unusual circumstances.

Ins 50.08(9)(b) (b) The insurer shall file with its annual statement filing the approval for relief from par. (a) with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

Ins 50.08 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 07-023: cr. (1) (am), Register September 2007 No. 621, eff. 10-1-07; CR 08-053: am. (2), cr. (3) to (9) Register December 2008 No. 636, eff. 1-1-09.

Ins 50.09 Ins 50.09 Consolidated or combined audits. An insurer may file audited consolidated or combined financial statements in lieu of separate annual audited financial statements required under this subchapter if the commissioner approves in writing and if the insurer is part of a group of insurers which utilizes a pooling or 100% reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. If the commissioner permits a consolidated report under this section the report shall include a columnar consolidating or combining work sheet, as follows:

Ins 50.09(1) (1) Amounts shown on the consolidated or combined audited financial report shall be shown on the work sheet.

Ins 50.09(2) (2) Amounts for each insurer subject to this section shall be stated separately.

Ins 50.09(3) (3) Noninsurance operations may be shown on the work sheet on a combined or individual basis.

Ins 50.09(4) (4) Explanations of consolidating and eliminating entries shall be included.

Ins 50.09(5) (5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the work sheet and comparable amounts shown on the annual statements of the insurers.

Ins 50.09 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93.

Ins 50.10 Ins 50.10 Scope of audit and report of independent certified public accountant. Financial statements furnished under s. Ins 50.06 shall be audited by the independent certified public accountant. The independent certified public accountant shall conduct the audit of the insurer’s financial statements in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit, the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU Section 319, for those insurers required to file a management’s report of internal control over financial reporting pursuant to s. Ins 50.17, the independent certified public accountant should consider, as that term is defined in Statement on Auditing Standards, SAS, No. 102, Defining Professional Requirements in Statements on Auditing Standards, or its replacement, the most recently available report in planning and performing the audit of the statutory financial statements. The independent certified public accountant shall give consideration to procedures illustrated in the financial condition examiner’s handbook promulgated by the national association of insurance commissioners as the independent certified public accountant deems necessary. The commissioner may require that an independent certified public accountant conduct additional procedures or provide additional reports.

Ins 50.10 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 07-023: am. Register September 2007 No. 621, eff. 10-1-07; CR 08-053: am. Register December 2008 No. 636, eff. 1-1-09.

Ins 50.11 Ins 50.11 Notification of adverse financial condition.

Ins 50.11(1) (1) An insurer shall require the independent certified public accountant to report, in writing and within 5 business days, to the board of directors of the insurer or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under audit or that the insurer does not meet the minimum capital and surplus or compulsory surplus requirements.

Ins 50.11(2) (2) An insurer who receives a report required under sub. (1) shall forward a copy of the report to the commissioner within 5 business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence that the report has been furnished to the commissioner.

Ins 50.11(3) (3) An independent certified public accountant shall furnish to the commissioner a copy of its report required under sub. (1) within 10 business days after it is furnished to the insurer under sub. (1) unless the independent certified public accountant receives evidence the insurer has provided it within the 10 business day period to the commissioner as required under sub. (2).

Ins 50.11(4) (4) An executive officer or director of an insurer which receives notice under sub. (1) shall report the notification in writing to the commissioner within 5 business days of the date the executive officer or director first acquires knowledge of the notification unless prior to that date the insurer complies with sub. (2).

Ins 50.11(5) (5) If the independent certified public accountant, subsequent to the date of the audited financial report filed pursuant to this chapter, becomes aware of facts that might have affected the report, the independent certified public accountant shall take the action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.

Ins 50.11 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 08-053: am. (1), cr. (5) Register December 2008 No. 636, eff. 1-1-09.

Ins 50.12 Ins 50.12 Communication of internal control related matters noted in an audit.

Ins 50.12(1) (1) An insurer shall file with the commissioner within 60 days of the date an annual audited financial report is filed, or is required under s. Ins 50.05 to be filed, a written communication prepared by the independent certified public accountant describing any unremediated material weaknesses in its internal controls over financial reporting noted during the audit. Such communication shall be prepared by the independent certified public accountant and shall contain a description of any unremediated material weakness, as the term material weakness is defined by Statement on Auditing Standard 60, Communication of Internal Control Related Matters Noted in an Audit, or its replacement, as of December 31 immediately preceding, so as to coincide with the audited financial report discussed in s. Ins 50.05 (1), in the insurer’s internal control over financial reporting noted by the accountant during the course of the audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state.

Ins 50.12(2) (2) The insurer shall provide a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the independent certified public accountant’s communication.

Ins 50.12 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 08-053: am. (title), renum. to be (1) and am., cr. (2) Register December 2008 No. 636, eff. 1-1-09.

Ins 50.13 Ins 50.13 Accountant’s letter of qualifications. An accountant or accounting firm retained by an insurer to comply with this subchapter shall furnish the insurer, and the insurer shall obtain and include with the filing of the annual audited financial report required under s. Ins 50.05, a letter from the accountant or accounting firm stating:

Ins 50.13(1) (1) That the accountant or accounting firm is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the code of professional ethics and pronouncements of the American institute of certified public accountants and the rules of professional conduct of the board of public accountancy of this state, or similar code.

Ins 50.13(2) (2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. This subchapter does not prohibit the accountant or accounting firm from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards.