N.J. Admin. Code § 11:28-1.8

Current through Register Vol. 57, No. 1, January 6, 2025

Section 11:28-1.8 - Annual audit

(a) All captives shall be subject to an annual audit by an independent certified public accountant, registered with the Commissioner, and subject to N.J.S.A. 17:47B-6b, shall annually file an audited financial report describing the results of the said audit with the Commissioner on or before June 30 for the calendar year ending December 31 immediately preceding.

(b) 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.

(c) The annual audit report shall consist of the following:

1. An Opinion of Independent Certified Public Accountant, which shall:

i. Include financial statements which have been examined by an independent certified public accountant in accordance with generally accepted auditing standards as determined by the American Institute of Certified Public Accountants;

ii. Cover all years presented; and

iii. Be addressed to the captive on stationery of the accountant, bear the date and address of issuance and bear the original manual signature of the accountant;

2. A Report of Evaluation of Internal Controls:

i. This report shall include an evaluation of the internal controls of the captive relating to the methods and procedures used in the securing of assets and the reliability of the financial records, including but not limited to such 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 filed with the Commissioner; and

3. An accountant's letter as set forth in (d) below.

(d) The accountant shall furnish the captive, for inclusion in the filing of the audited annual report, a letter describing the general background and experience of the staff engaged in the audit, including their experience in auditing captives or other insurance companies, and stating that:

1. He or she is independent with respect to the captive 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 pronouncements of the Financial Accounting Standards Board;

2. The accountant understands that the audited annual report and his or her opinions thereon will be filed with the Department in compliance with this section;

3. The accountant consents to the requirements of N.J.A.C. 11:28-1.1 1 and consents to and agrees to make available for review by the Commissioner, his or her designee or his or her appointed agent, the work papers as defined in N.J.A.C. 11:28-1.1 1; and

4. 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.

(e) The annual audit shall also include financial statements.

1. The statements required shall be as follows:

i. A balance sheet; and

ii. A statement of gain or loss from operations;

2. A statement of changes in financial position;

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

4. Notes to financial statements. The notes to financial statements shall be those required by generally accepted accounting principles or statutory accounting principles, as applicable, and shall include:

i. A reconciliation of differences, if any, between the audited financial report and the statement or form filed with the Commissioner;

ii. A summary of ownership and relationship of the company and all affiliated corporations or companies insured by the captive; and

iii. A narrative explanation of all material transactions and balances with the company;

(f) The annual audit shall include a Certification of Loss Reserves and Loss Expense Reserves (which can be submitted separately).

1. The annual audit shall include an opinion as to the adequacy of the company's loss reserves and loss expense reserves.

2. The individual who certifies as to the adequacy of reserves shall be:

i. A Fellow of the Casualty Actuarial Society, a member in good standing of the American Academy of Actuaries, or an individual who has complied with (f)4 below and has demonstrated to the Commissioner his or her competence in loss reserve evaluation for property and casualty insurance; or

ii. A Fellow of the Society of Actuaries, a member in good standing of the America Academy of Actuaries, or an individual who has complied with (f)4 below and has demonstrated to the Commissioner his or her competence in loss reserve evaluation for either life or health insurance.

3. The certification shall be in such form as the Commissioner deems appropriate.

4. No individual shall certify loss reserves and loss expense reserves for captives unless the individual is registered with the Department. The Department shall maintain a list of registered actuaries who may certify loss reserves and loss exposure reserves for captives and shall post this list on its website. An individual seeking such registration who is not on the Department's list shall submit an application for Authorization to Certify Loss Reserves and Loss Expense Reserves for Captives and a Biographical Affidavit (form can be found on the Department's website at http://www.state.nj.us/dobi/division_insurance/captive/serviceproviders.html) to the Department for approval.

N.J. Admin. Code § 11:28-1.8