No. 29458: R590-238. Captive Insurance Companies

DAR File No.: 29458
Filed: 03/30/2007, 12:11
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The changes to this rule come from feedback the department received during the comment period and hearing on the proposed new rule.

Summary of the rule or change:

Almost all of the changes made to this rule are for clarification purposes only. Section R590-238-3 adds three new definitions to the rule. The definition of Company" comes from the Code and the definition of "Work Papers" has been moved from Subsection R590-238-10(3). Subsection R590-238-4(3) reiterates what has already been said in R590-238-4(2). Section R590-238-5 is composed mainly of grammatical corrections, corrections in code references, and wording more commonly used in actuarial circles like "reasonableness" and "Associate". Section R590-238-6 clarifies who can be approved by the commissioner to certify reserves. Section R590-238-7 moves the last sentence to the first to make a new subsection. Section R590-238-17 corrects a code citation and other changes for clarification. Section R590-238-20 eliminates subsection (3) because it is not a requirement for captives insurers. The changes in Subsection R590-238-21(4) are for clarification purposes only. (DAR NOTE: This change in proposed rule has been filed to make additional changes to a proposed new rule that was published in the February 15, 2007, issue of the Utah State Bulletin, on page 32. Underlining in the rule below indicates text that has been added since the publication of the proposed rule mentioned above; strike-out indicates text that has been deleted. You must view the change in proposed rule and the proposed new rule together to understand all of the changes that will be enforceable should the agency make this rule effective.)

State statutory or constitutional authorization for this rule:

Sections 31A-2-201 and 31A-37-106

Anticipated cost or savings to:

the state budget:

The changes to this rule will have no impact on the department or state's budget. The only change that might have created impact on the budget would have been in Subsection R590-238-20(3). Even though this eliminates what appears to be a fee for the preparation and issuance of certificates and reports at the initial licensing and renewal by the Captive, it would not affect the budget because there is no such fee for captives in the department's fee rule, Rule R590-102. Nor do any of the changes result in a change to the filings received by the department.

local governments:

This rule will not affect local governments since it only deals with the relationship between the department and their licensees.

other persons:

These rule changes will have no fiscal impact on captive insurers or their customers. No increase or reduction in fees or filings will be required. The changes are for clarification purposes, to make corrections to code references, or in the case of Section R590-238-20, to eliminate a requirement that was not relevant to captives.

Compliance costs for affected persons:

These rule changes will have no fiscal impact on captive insurers or their customers. No increase or reduction in fees or filings will be required. The changes are for clarification purposes, to make corrections to code references, or in the case of Section R590-238-20, to eliminate a requirement that was not relevant to captives.

Comments by the department head on the fiscal impact the rule may have on businesses:

The changes to this rule will create no fiscal impact on businesses. D. Kent Michie, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY UT 84114-1201

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

05/15/2007

This rule may become effective on:

05/22/2007

Authorized by:

Jilene Whitby, Information Specialist

RULE TEXT

R590. Insurance, Administration.

R590-238. Captive Insurance Companies.

 

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R590-238-3. Definitions.

(1) The definitions in Sections 31A-1-301 and 31A-37-102 apply to this rule.

(2) "Company" means a captive insurance company as defined in Section 31A-1-301.

(3) "Work Papers" or "working papers" include, but are not necessarily limited to, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of company records or other documents prepared or obtained by the accountant and the accountant's employees in the conduct of their audit of the company.

 

R590-238-4. Annual Reporting Requirements.

(1) A captive insurance company authorized in this state shall file an annual report of its financial condition with the commissioner as required by Section 31A-37-501. The report shall be verified by oath of two of its executive officers and shall be prepared using generally accepted accounting principles ("GAAP"). The annual report may be filed electronically consistent with directions from the commissioner.

(2) An association captive insurance company, a sponsored captive insurance company, and an industrial insured captive insurance company shall observe the requirements of Section 31A-4-113 when they file an annual report on its financial condition. In addition, an industrial insured group shall observe the requirements of Section 31A-4-113.5 when it files an annual report.

(3) [The annual report shall be filed on the form prescribed in statute or in this rule.]All captive insurance companies, except those noted in Subsection R590-238-4(2), are to use the "Captive Insurance Company Annual Statement Form."

 

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R590-238-6. Annual Audit.

(1) All companies shall have an annual audit by an independent certified public accountant, approved by the commissioner, and shall file such audited financial report with the commissioner on or before June 30 for the preceding year ending December 31. Financial statements furnished under this section shall be prepared in accordance with generally accepted auditing standards as determined by the American Institute of Certified Public Accountants ("AICPA").

(2) The annual audit report shall be considered part of the company's annual report of financial condition except with respect to the date by which it must be filed with the commissioner.

(3) The annual audit shall consist of the following:

(a) Opinion of Independent Certified Public Accountant

(i) Financial statements furnished pursuant to this section shall be examined by independent certified public accountants in accordance with generally accepted auditing standards as determined by the [American Institute of Certified Public Accountants]AICPA.

(ii) The opinion of the independent certified public accountant shall cover all years presented.

(iii) The opinion shall be addressed to the company on stationery of the accountant showing the address of issuance, shall bear original manual signatures and shall be dated.

(b) Report of Evaluation of Internal Controls

(i) This report shall include an evaluation of the internal controls of the company relating to the methods and procedures used in the securing of assets and the reliability of the financial records, including but not limited to, controls as the system of authorization and approval and the separation of duties.

(ii) The review shall be conducted in accordance with generally accepted auditing standards and the report shall be filed with the commissioner.

(c) Accountant's Letter

The accountant shall furnish the company, for inclusion in the filing of the audited annual report, a letter stating:

(i) that he is independent with respect to the company and conforms to the standards of his profession as contained in the Code of Professional Ethics and pronouncements of the [American Institute of Certified Public Accountants]AICPA and pronouncements of the Financial Accounting Standards Board;

(ii) the general background and experience of the staff engaged in the audit, including their experience in auditing captive or other insurance companies;

(iii) that the accountant understands that the audited annual report and his opinions thereon will be filed in compliance with this rule.

(iv) that the accountant consents to the requirements of R590-238-10;

(v) that the accountant consents and agrees to make the work papers as defined in [R590-238-10(3)]R590-238-3(3) available for review by the commissioner, his designee or his appointed agent; and

(vi) that the accountant is properly licensed by an appropriate state licensing authority[ and is a member in good standing in the American Institute of Certified Public Accountants].

(d) Financial Statements

(i) The financial statements required shall be as follows:

(A) balance sheet;

(B) statement of gain or loss from operations;

(C) statement of changes in financial position;

(D) statement of cash flow;

(E) statement of changes in capital paid up, gross paid in and contributed surplus and unassigned funds (surplus); and

(F) notes to financial statements.

(ii) The notes to financial statements shall be those required by [generally accepted accounting principles]GAAP and shall include:

(A) a reconciliation of differences, if any, between the audited financial report and the statement or form filed with the commissioner;

(B) a summary of ownership and relationship of the company and all affiliated corporations or companies insured by the captive; and

(C) a narrative explanation of all material transactions with the company. For purposes of this provision, no transaction shall be deemed material unless it involves 3% or more of a company's admitted assets as of the December 31 next preceding.

(e) Certification of Loss Reserves and Loss Expense Reserves of the [companies]company's opining actuary

(i) The annual audit shall include an actuarial opinion as to the [adequacy]reasonableness of the company's loss reserves and loss expense reserves, unless waived by the commissioner.

(ii) The individual who certifies as to the [adequacy]reasonableness of reserves shall be approved by the Commissioner and shall be a Fellow or Associate of the Casualty Actuarial Society and a member in good standing of the American Academy of Actuaries, for property and casualty companies or a Fellow or Associate of the Society of Actuaries and a member in good standing of the American Academy of Actuaries for life and health companies.

(4) Certification under Subsection R590-238-6(3)(e) shall be in such form as the commissioner deems appropriate.

 

R590-238-7. Designation of Independent Certified Public Accountant.

(1) A certified public accountant that is retained to conduct the independent annual audit may only be appointed from the list of approved certified public accounting firms or individual certified public accountants maintained by the commissioner.

(2) A company that terminates the appointment of an independent certified public accountant retained to conduct the annual audit required in this rule shall report the name and address of the certified public accountant in writing to the commissioner within ninety days after the appointment is terminated and shall within the same period report the name and address of the certified public accountant that is subsequently retained.[ A certified public accountant that is retained to conduct the independent annual audit may only be appointed from the list of approved certified public accountants from companies maintained by the commissioner.]

 

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R590-238-10. Availability and Maintenance of Working Papers of the Independent Certified Public Accountant.

(1) Each company shall require its independent certified public accountant to make all work papers prepared in the conduct of the audit of the company available for review by the commissioner or his appointed agent. The company shall require that the accountant retain the audit work papers for a period of not less than five years after the period reported upon.

(2) The review by the commissioner shall be considered an official investigation by the commissioner and all working papers obtained during the course of such investigation shall be confidential business papers and shall be classified as business confidential protected records. The company shall require that the independent certified public accountant provide photocopies of any of the working papers that the department considers relevant. The department may retain any photocopies of working papers.[

(3) "Work Papers" or "working papers" as referred to in this section include, but are not necessarily limited to, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of company records or other documents prepared or obtained by the accountant and his employees in the conduct of their audit of the company.]

 

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R590-238-16. Acquisition [or Change ]of Control of or Merger with Domestic Company.

The acquisition [or change ]of control of or merger of a domestic captive insurance company shall be regulated pursuant to Section 31A-16-103.

 

R590-238-17. Suspension or Revocation.

(1) The commissioner may by order suspend or revoke the license of a company or place the same on probation on the following grounds:

(a) the company has not commenced business according to its plan of operation within two years of being licensed;[ or]

(b) the company has ceased to carry on insurance business in or from within Utah;[ or]

(c) at the request of the company; or

(d) [for ]any reason provided in Section 31A-37-505.

(2) Before the commissioner takes any action set forth under [R590-238-16(1)]R590-238-17(1) the commissioner shall give the company notice in writing of the grounds on which [he]the commissioner proposes to act, and shall afford the company a hearing as to such proposed action in accordance with[ the Utah Administrative Procedures Act, Chapter 46b,] Title 63, Chapter 46b, Utah Administrative Procedures Act.

 

R590-238-18. Change of [Business]Information in Initial Application.

(1) Any material change in a company's business plan that was filed with the commissioner at the time of initial application and any subsequent amendment of the plan requires prior approval of the commissioner.

(2) Any change in any other information filed with the initial application must be filed with the commissioner within sixty days after the change, but does not require prior approval.

(3) The company shall immediately notify the commissioner upon making changes in board members or officers of the company.

 

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R590-238-20. Fee Schedule. Initial Application. Renewal.

(1) An applicant for a certificate of authority under the captive insurance code shall pay a nonrefundable fee established in the department's fee rule, R590-102-7 for examining, investigating, and processing its initial application for license to the commissioner at the time the application is filed.

(2) In addition, each company that is licensed by the commissioner shall pay a license fee, without proration, for the initial year of registration and a renewal fee for each succeeding year in the amount established in the department's fee rule, R590-102-7.

[ (3) Each company shall pay an annual nonrefundable service fee each year in the amount established in the department's fee rule, R590-102-7 to the commissioner at the time its license is renewed for the preparation and issuance of:

(a) certificates of:

(i) compliance;

(ii) deposit;

(iii) application;

(iv) capital; and

(v) surplus;

(b) transcript of records;

(c) annual statements;

(d) report of examination; and

(e) other certifications as may be necessary, but excluding certificates of authority.

] ([4]3) Each company shall pay an annual nonrefundable e-commerce and internet technology services fee each year in the amount established in the department's fee rule, R590-102-14(1)(b) to the commissioner.

([5]4) Each captive insurance company shall pay a nonrefundable fee in the amount established in the department's fee rule, R590-102[-7] for photocopies of documents to the commissioner.

 

R590-238-21. Authorized Forms.

(1) The following forms are to be used for any applicant applying for a certificate of authority for a new captive insurance company and may be obtained from the department's captive administrator at [phone] or [phone]:

(a) "Application to Form A Captive Insurance Company;"

(b) "Biographical Affidavit For Captive Insurance Company;"

(c) "Utah Insurance Department Captive Insurance Company Reinsurance Exhibit;"

(e) "Utah Approved Irrevocable Letter of Credit;"

(f) "Statement if Economic Benefit to the State of Utah;" and

(g) "Appointment Of The Insurance Commissioner For The State Of Utah As Attorney To Accept Service of Process."

(2) The following forms are to be used when applying to become an Approved captive insurance company provider and are available on the department's captive website:

(a) "Application for Placement on Approved Captive Insurer Management Firm List;"

(b) "Application To Certify Loss And Expense For Captive Insurance Companies Captive Actuary Application;" and

(c) "Application For Authorization As An Independent Certified Public Accountant for Captive Insurance Companies."

(3) All captive insurance companies, except those noted in R590-238-4(2), are to use the "Captive Insurance Company Annual Statement Form."

(4) [The]A company shall file a "Statement of Economic Benefit to the State of Utah" form [should be filed ]with [the]its initial application and for each of the 12 months ending December 31, of each applicable year.

(5) The forms indicated in Sections (2), (3), and (4) are available on the department's captive website, www.captive.utah.gov/licensing.html.

 

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KEY: captive insurance

Date of Enactment or Last Substantive Amendment: 2007

Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-37-106