2007 Minnesota Statutes

60A.129 LOSS RESERVE CERTIFICATION AND ANNUAL AUDIT.
    Subdivision 1. Definitions. The definitions in this subdivision apply to this section.
(a) "Qualified actuary," except as it relates to subdivision 2, paragraph (c), for companies
authorized to provide life insurance coverage under section 60A.06, subdivision 1, clause (4),
is a person who is either:
(1) a member in good standing of the Casualty Actuarial Society; or
(2) a member in good standing of the American Academy of Actuaries who has been
approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council
of the American Academy of Actuaries; or
(3) a person who otherwise has competency in loss reserve evaluation as demonstrated to the
satisfaction of the insurance regulatory official of the domiciliary state. In such case, at least 90
days prior to the filing of its annual statement, the insurer must request approval that the person
be deemed qualified and that request must be approved or denied. The request must include the
National Association of Insurance Commissioners biographical form and a list of all loss reserve
opinions issued in the last three years by this person.
(b) For purposes of subdivision 2, paragraph (c), a qualified actuary for companies authorized
to write life insurance coverage under section 60A.06, subdivision 1, clause (4), shall be:
(1) a member in good standing of the American Academy of Actuaries;
(2) qualified to sign statements of actuarial opinion for life and health insurance company
annual statements in accordance with the American Academy of Actuaries qualification standards
for actuaries signing these statements;
(3) familiar with the valuation requirements applicable to life and health insurance
companies.
(c) A qualified actuary as defined by this subdivision is an individual who:
(1) has not been found by the commissioner, or if so found has subsequently been reinstated
as a qualified actuary, following appropriate notice and hearing to have:
(i) violated any provision of, or any obligation imposed by, the state insurance law or other
law in the course of the actuary's dealings as a qualified actuary;
(ii) been found guilty of fraudulent or dishonest practices;
(iii) demonstrated incompetency, lack of cooperation, or untrustworthiness to act as a
qualified actuary; or
(iv) submitted to the commissioner during the past five years, pursuant to this chapter, an
actuarial opinion that the commissioner rejected because it did not meet the provisions of this
chapter including standards set by the actuarial standards board;
(2) has resigned or been removed as an actuary within the past five years as a result of acts or
omissions indicated in any adverse report on examination or as a result of failure to adhere to
generally acceptable actuarial standards of the American Academy of Actuaries; and
(3) has not failed to notify the commissioner of any action taken by any commissioner of
any other state similar to that under clause (1).
(d) "Accountant" and "independent public accountant" mean an independent certified public
accountant or accounting firm in good standing with the American Institute of Certified Public
Accountants and in all states in which the accountant or firm is licensed to practice. For Canadian
and British companies, the term means a Canadian-chartered or British-chartered accountant.
    Subd. 2. Loss reserve certification. (a) Each domestic company engaged in providing the
types of coverage described in section 60A.06, subdivision 1, clause (1), (2), (3), (5)(b), (6), (8),
(9), (10), (11), (12), (13), or (14) , must have its loss reserves certified by a qualified actuary. The
company must file the certification with the commissioner within 30 days of completion of the
certification, but not later than June 1. The actuary providing the certification may be an employee
of the company but the commissioner may still require an independent actuarial certification as
described in subdivision 1. This subdivision does not apply to township mutual companies, or
to other domestic insurers having less than $1,000,000 of premiums written in any year and
fewer than 1,000 policyholders. The commissioner may allow an exception to the stand alone
certification where it can be demonstrated that a company in a group has a pooling or 100 percent
reinsurance agreement used in a group which substantially affects the solvency and integrity of
the reserves of the company, or where it is only the parent company of a group which is licensed
to do business in Minnesota. If these circumstances exist, the company may file a written request
with the commissioner for an exception. Companies writing reinsurance alone are not exempt
from this requirement. The certification must contain the following statement: "In my opinion, the
reserves described in this certification are consistent with reserves computed in accordance with
standards and principles established by the Actuarial Standards Board and are fairly stated."
(b) Each foreign company engaged in providing the types of coverage described in section
60A.06, subdivision 1, clause (1), (2), (3), (5)(b), (6), (8), (9), (10), (11), (12), (13), or (14),
required by this section to file an annual audited financial report, whose total net earned premium
for Schedule P, Part 1A to Part 1H plus Part 1R, (Schedule P, Part 1A to Part 1H plus Part
1R, Column 4, current year premiums earned, from the company's most currently filed annual
statement) is equal to one-third or more of the company's total net earned premium (Underwriting
and Investment Exhibit, Part 2, Column 4, total line, of the annual statement) must have a reserve
certification by a qualified actuary at least every three years. In the year that the certification is
due, the company must file the certification with the commissioner within 30 days of completion
of the certification, but not later than June 1. The actuary providing the certification may be
an employee of the company. Companies writing reinsurance alone are not exempt from this
requirement. The certification must contain the following statement: "The loss reserves and loss
expense reserves have been examined and found to be calculated in accordance with generally
accepted actuarial principles and practices and are fairly stated."
    Subd. 3. Annual audit. (a) Every insurance company doing business in this state, including
fraternal benefit societies, reciprocal exchanges, service plan corporations licensed pursuant
to chapter 62C, and legal service plans licensed pursuant to chapter 62G, unless exempted by
the commissioner pursuant to subdivision 5, paragraph (a), or by subdivision 7, shall have an
annual audit of the financial activities of the most recently completed calendar year performed
by an independent certified public accountant, and shall file the report of this audit with the
commissioner on or before June 1 for the immediately preceding year ending December 31.
The commissioner may require an insurer to file an audited financial report earlier than June 1
with 90 days' advance notice to the insurer.
Extensions of the June 1 filing date may be granted by the commissioner for 30-day periods
upon a showing by the insurer and its independent certified public accountant of the reasons for
requesting the extension and a determination by the commissioner of good cause for the extension.
The request for extension must be submitted in writing not less than ten days before the due
date in sufficient detail to permit the commissioner to make an informed decision with respect
to the requested extension.
(b) Foreign and alien insurers filing audited financial reports in another state under the other
state's requirements of audited financial reports which have been found by the commissioner to
be substantially similar to these requirements are exempt from this subdivision if a copy of the
audited financial report, accountant's letter of qualifications, and report on significant deficiencies
in internal controls, which are filed with the other state, are filed with the commissioner in
accordance with the filing dates specified in paragraphs (a) and (l), (Canadian insurers may
submit accountants' reports as filed with the Canadian Dominion Department of Insurance); and a
copy of any notification of adverse financial condition report filed with the other state is filed with
the commissioner within the time specified in paragraph (k). This paragraph does not prohibit or
in any way limit the commissioner from ordering, conducting, and performing examinations of
insurers under the authority of this chapter.
(c)(i) The annual audited financial report shall report, in conformity with statutory accounting
practices required or permitted by the commissioner of insurance of the state of domicile, 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 ended. The annual audited
financial report shall include a report of an independent certified public accountant; a balance sheet
reporting admitted assets, liabilities, capital, and surplus; a statement of operations; a statement of
cash flows; a statement of changes in capital and surplus; and notes to the financial statements.
(ii) The notes required under item (i) shall be those required by the appropriate National
Association of Insurance Commissioners annual statement instructions and National Association
of Insurance Commissioners Accounting Practices and Procedures Manual and shall include
reconciliation of differences, if any, between the audited statutory financial statements and the
annual statement filed under section 60A.13, subdivision 1, with a written description of the
nature of these differences.
(iii) The financial statements included in the audited financial report shall be 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. In the first year in which an insurer is required to file an
audited financial report, the comparative data may be omitted. The amounts may be rounded to
the nearest $1,000, and all insignificant amounts may be combined.
(d) Each insurer required by this section to file an annual audited financial report must
notify the commissioner in writing of the name and address of the independent certified public
accountant or accounting firm retained to conduct the annual audit within 60 days after becoming
subject to the annual audit requirement. The insurer shall obtain from the accountant a letter which
states that the accountant is aware of the provisions that relate to accounting and financial matters
in the insurance laws and the rules of the insurance regulatory authority of the state of domicile.
The letter shall affirm that the accountant will express an opinion on the financial statements in
terms of their conformity to the statutory accounting practices prescribed or otherwise permitted
by that insurance regulatory authority, specifying the exceptions believed to be appropriate. A
copy of the accountant's letter shall be filed with the commissioner.
(e) If an accountant who was the accountant for the immediately preceding filed audited
financial report is dismissed or resigns, the insurer shall notify the commissioner of this event
within five business days. Within ten business days of this notification, the insurer shall also
furnish the commissioner with a separate letter stating whether in the 24 months preceding this
event there were any disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which,
if not resolved to the satisfaction of the former accountant, would have caused that person to
make reference to the subject matter of the disagreement in connection with the opinion. The
disagreements required to be reported in response to this paragraph include both those resolved to
the former accountant's satisfaction and those not resolved to the former accountant's satisfaction.
Disagreements contemplated by this section are those disagreements between personnel of the
insurer responsible for presentation of its financial statements and personnel of the accounting
firm responsible for rendering its report. The insurer shall also in writing request the former
accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with
the statements contained in the insurer's letter and, if not, stating the reasons for any disagreement.
The insurer shall furnish this responsive letter from the former accountant to the commissioner
together with its own.
(f) The commissioner shall not recognize any person or firm as a qualified independent
certified public accountant that is not in good standing with the American Institute of Certified
Public Accountants and in all states in which the accountant is licensed to practice, or for a
Canadian or British company, that is not a chartered accountant. Except as otherwise provided,
an independent certified public accountant shall be recognized as qualified as long as the person
conforms to the standards of the person's profession, as contained in the Code of Professional
Ethics of the American Institute of Certified Public Accountants and the rules of professional
conduct of the Minnesota Board of Public Accountancy or similar code.
(g) No partner or other person responsible for rendering a report for calendar year 1997 and
thereafter may act in that capacity for more than seven consecutive years. Following any period
of service, the 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 two years. An insurer may make
application to the commissioner for relief from the above rotation requirement on the basis of
unusual circumstances. The commissioner may consider the number of partners, the expertise
of the partners or the number of insurance clients in the currently registered firm, the premium
volume of the insurer, or the number of jurisdictions in which the insurer transacts business in
determining if the relief should be granted.
(h) The commissioner shall not recognize as a qualified independent certified public
accountant, nor accept any audited financial report, prepared in whole or in part by any natural
person who has been convicted of fraud, bribery, a violation of the Racketeer Influenced and
Corrupt Organizations Act, United States Code, title 18, sections 1961 to 1968, or any dishonest
conduct or practices under federal or state law, has been found to have violated the insurance laws
of this state with respect to any previous reports submitted under this section, or has demonstrated
a pattern or practice of failing to detect or disclose material information in previous reports filed
under the provisions of this section.
(i) The commissioner, after notice and hearing under chapter 14, may find that the accountant
is not qualified for purposes of expressing an opinion on the financial statements in the annual
audited financial report. The commissioner may require the insurer to replace the accountant with
another whose relationship with the insurer is qualified within the meaning of this section.
(j) Financial statements furnished under paragraph (a), shall be examined by an independent
certified public accountant. The examination of the insurer's financial statements shall be
conducted in accordance with generally accepted auditing standards and consideration should
be given to other procedures illustrated in the Financial Condition Examiners Handbook, issued
by the National Association of Insurance Commissioners, as the independent certified public
accountant considers necessary.
(k) The insurer required to furnish the annual audited financial report shall require the
independent certified public accountant to provide written notice within five business days to the
board of directors of the insurer or its audit committee of any determination by that 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 examination or that the
insurer does not meet the minimum capital and surplus requirement of sections 60A.07, 66A.32,
and 66A.33 as of that date. An insurer required to file an annual audited financial report who
received a notification of adverse financial condition from the accountant shall file a copy of the
notification with the commissioner within five business days of the receipt of the notification. The
insurer shall provide the independent certified public accountant making the notification with
evidence of the report being furnished to the commissioner. If the independent certified public
accountant fails to receive the evidence within the required five-day period, the independent
certified public accountant shall furnish to the commissioner a copy of the notification to the board
of directors or its audit committee within the next five business days. No independent certified
public accountant shall be liable in any manner to any person for any statement made in connection
with this paragraph if the statement is made in good faith in compliance with this paragraph. If
the accountant becomes aware of facts which might have affected the audited financial report
after the date it was filed under this section, the accountant shall take the action prescribed by
Professional Standards issued by the American Institute of Certified Public Accountants.
(l) In addition to the annual audited financial statements, each insurer shall furnish the
commissioner with a written report prepared by the accountant describing significant deficiencies
in the insurer's internal control structure noted by the accountant during the audit. The accountant
shall follow the professional standards issued by the American Institute of Certified Public
Accountants, which require an accountant to communicate significant deficiencies, known as
reportable conditions, noted during a financial statement audit, to the appropriate parties within
an entity. No report shall be issued if the accountant does not identify significant deficiencies.
Any such report by the accountant describing significant deficiencies in the insurer's internal
control structure, shall be filed annually by the insurer with the commissioner within 60 days after
the filing of the annual audited financial statements. This report on internal control shall be in
the form prescribed by generally accepted auditing standards. The insurer shall provide the
commissioner with a description of remedial actions taken or proposed to correct significant
deficiencies, if those actions are not described in the accountant's report.
(m) The accountant shall furnish the insurer in connection with, and for inclusion in, the
filing of the annual audited financial report, a letter stating that the accountant is independent with
respect to the insurer and conforms to the standards of the accountant's profession as contained
in the Code of Professional Ethics of the American Institute of Certified Public Accountants
and the rules of professional conduct of the Minnesota Board of Accountancy or similar code;
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; that
the accountant understands that the annual audited financial report and the opinion thereon will be
filed in compliance with this statute and that the commissioner will be relying on this information
in the monitoring and regulation of the financial position of insurers; that the accountant consents
to the requirements of paragraph (n) and that the accountant consents and agrees to make
available for review by the commissioner, or the commissioner's designee or appointed agent, the
workpapers, as defined in paragraph (n); a representation that the accountant is properly licensed
by the appropriate state licensing authority and is a member in good standing in the American
Institute of Certified Public Accountants; and, a representation that the accountant complies with
paragraph (f). Nothing in this section shall be construed as prohibiting the accountant from
utilizing staff the accountant deems appropriate where use is consistent with the standards
prescribed by generally accepted auditing standards.
(n) Workpapers are the records kept by the independent certified public accountant of the
procedures followed, tests performed, information obtained, and conclusions reached pertinent to
the independent certified public accountant's examination of the financial statements of an insurer.
Workpapers may include audit planning documents, work programs, analyses, memoranda, letters
of confirmation and representation, management letters, abstracts of company documents, and
schedules or commentaries prepared or obtained by the independent certified public accountant
in the course of the examination of the financial statements of an insurer and that support the
accountant's opinion. Every insurer required to file an audited financial report shall require the
accountant, through the insurer, to make available for review by the examiners the workpapers
prepared in the conduct of the examination and any communications related to the audit between
the accountant and the insurer. The workpapers shall be made available at the offices of the
insurer, at the offices of the commissioner, or at any other reasonable place designated by the
commissioner. The insurer shall require that the accountant retain the audit workpapers and
communications until the commissioner has filed a report on examination covering the period
of the audit but no longer than seven years after the period reported upon. In the conduct of
the periodic review by the examiners, it shall be agreed that photocopies of pertinent audit
workpapers may be made and retained by the commissioner. These copies shall be part of the
commissioner's workpapers and shall be given the same confidentiality as other examination
workpapers generated by the commissioner.
(o)(i) In the case of Canadian and British insurers, the annual audited financial report means
the annual statement of total business on the form filed by these companies with their domiciliary
supervision authority and duly audited by an independent chartered accountant.
(ii) For these insurers, the letter required in paragraph (d), shall state that the accountant is
aware of the requirements relating to the annual audited statement filed with the commissioner
under paragraph (a), and shall affirm that the opinion expressed is in conformity with those
requirements.
(p) The audit report of the independent certified public accountant that performs the audit
of an insurer's annual statement as required under paragraph (a), shall contain a statement as to
whether anything, in connection with the audit, came to the accountant's attention that caused
the accountant to believe that the insurer failed to adopt and consistently apply the valuation
procedures as required by sections 60A.122 and 60A.123.
    Subd. 4. Examinations. (a) The commissioner or a designated representative shall determine
the nature, scope, and frequency of examinations under this section conducted by examiners under
section 60A.031. These examinations may cover all aspects of the insurer's assets, condition,
affairs, and operations and may include and be supplemented by audit procedures performed by
independent certified public accountants. Scheduling of examinations will take into account
all relevant matters with respect to the insurer's condition, including results of the National
Association of Insurance Commissioners, Insurance Regulatory Information Systems, changes
in management, results of market conduct examinations, and audited financial reports. The type
of examinations performed by examiners under this section shall be compliance examinations,
targeted examinations, and comprehensive examinations.
(b) Compliance examinations will consist of a review of the accountant's workpapers defined
under this section and a general review of the insurer's corporate affairs and insurance operations
to determine compliance with the Minnesota insurance laws and the rules of the Department of
Commerce. The examiners may perform alternative or additional examination procedures to
supplement those performed by the accountant when the examiners determine that the procedures
are necessary to verify the financial condition of the insurer.
(c) Targeted examinations may cover limited areas of the insurer's operations as the
commissioner may deem appropriate.
(d) Comprehensive examinations will be performed when the report of the accountant as
provided for in subdivision 3, paragraph (g), the notification required by subdivision 3, paragraph
(h), the results of compliance or targeted examinations, or other circumstances indicate in the
judgment of the commissioner or a designated representative that a complete examination of the
condition and affairs of the insurer is necessary.
(e) Upon completion of each targeted, compliance, or comprehensive examination, the
examiner appointed by the commissioner shall make a full and true report on the results of the
examination. Each report shall include a general description of the audit procedures performed
by the examiners and the procedures of the accountant that the examiners may have utilized
to supplement their examination procedures and the procedures that were performed by the
registered independent certified public accountant if included as a supplement to the examination.
    Subd. 5. Consolidated filing. (a) The commissioner may allow an insurer to file a
consolidated loss reserve certification required by subdivision 2, in lieu of separate loss
certifications and may allow an insurer to file consolidated or combined audited financial
statements required by subdivision 3, paragraph (a), in lieu of separate annual audited financial
statements, where it can be demonstrated that an insurer is part of a group of insurance companies
that has a pooling or 100 percent reinsurance agreement which substantially affects the solvency
and integrity of the reserves of the insurer and the insurer cedes all of its direct and assumed
business to the pool. An affiliated insurance company not meeting these requirements may be
included in the consolidated or combined audited financial statements, if the company's total
admitted assets are less than five percent of the consolidated group's total admitted assets. If
these circumstances exist, then the company may file a written application to file a consolidated
loss reserve certification and/or consolidated or combined audited financial statements. This
application shall be for a specified period.
(b) Upon written application by a domestic insurer, the commissioner may authorize
the domestic insurer to include additional affiliated insurance companies in the consolidated
or combined audited financial statements. Foreign insurers must obtain the prior written
authorization of the commissioner of their state of domicile in order to submit an application for
authority to file consolidated or combined audited financial statements. This application shall be
for a specified period.
(c) A consolidated annual audit filing shall include a columnar consolidated or combining
worksheet. Amounts shown on the audited consolidated or combined financial statement shall
be shown on the worksheet. Amounts for each insurer shall be stated separately. Noninsurance
operations may be shown on the worksheet on a combined or individual basis. Explanations of
consolidating or eliminating entries shall be shown on the worksheet. A reconciliation of any
differences between the amounts shown in the individual insurer columns of the worksheet
and comparable amounts shown on the annual statement of the insurers shall be included on
the worksheet.
    Subd. 6. Penalties. No annual statement, report, or document related to the business of
insurance shall be filed with the commissioner or issued to the public if it is signed by anyone
who is represented in the instrument as an "actuary" or "accountant," unless the person is qualified
as defined by this section. A violation of this subdivision is a violation of section 72A.19 and
punishable in accordance with section 72A.25.
    Subd. 7. Exemptions. (a) Upon written application of any insurer, the commissioner may
grant an exemption from compliance with the provisions of this section. In order to receive an
exemption, an insurer must demonstrate to the satisfaction of the commissioner that compliance
would constitute a financial or organizational hardship upon the insurer. An exemption may be
granted at any time and from time to time for specified periods. Within ten days from the denial
of an insurer's written request for an exemption, the insurer may request in writing a hearing
on its application for an exemption. This hearing shall be held in accordance with chapter 14.
Upon written application of any insurer, the commissioner may permit an insurer to file annual
audited financial reports on some basis other than a calendar year basis for a specified period.
No exemption shall be granted until the insurer presents an alternative method satisfying the
purposes of this section. Within ten days from a denial of a written request for an exemption,
the insurer may request in writing a hearing on its application. The hearing shall be held in
accordance with chapter 14.
(b) This section applies to all insurers, unless otherwise indicated, required to file an annual
audit by subdivision 3, paragraph (a), except insurers having less than $1,000,000 of direct written
premiums in this state in any calendar year and fewer than 1,000 policyholders or certificate
holders of directly written policies nationwide at the end of the calendar year, are exempt from
this section for that year, unless the commissioner makes a specific finding that compliance is
necessary for the commissioner to carry out statutory responsibilities, except that insurers having
assumed premiums from reinsurance contracts or treaties of $1,000,000 or more are not exempt.
History: 1993 c 299 s 3; 1994 c 426 s 4-6; 2000 c 350 s 8; 2000 c 483 s 4; 2001 c 131 s
3; 2001 c 215 s 4; 2004 c 285 art 3 s 1; 2005 c 69 art 2 s 18