Title of Rule and Other Identifying Information: Audited
financial statement reporting.
THIS RULE IS BEING PROPOSED UNDER AN EXPEDITED RULE-MAKING PROCESS THAT WILL ELIMINATE THE NEED FOR THE AGENCY TO HOLD PUBLIC HEARINGS, PREPARE A SMALL BUSINESS ECONOMIC IMPACT STATEMENT, OR PROVIDE RESPONSES TO THE CRITERIA FOR A SIGNIFICANT LEGISLATIVE RULE. IF YOU OBJECT TO THIS USE OF THE EXPEDITED RULE-MAKING PROCESS, YOU MUST EXPRESS YOUR OBJECTIONS IN WRITING AND THEY MUST BE SENT TO Kacy Scott, Insurance Commissioner, P.O. Box 40258, Olympia, WA 98504-0258, e-mail KacyS@oic.wa.gov , AND RECEIVED BY February 24, 2009.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed rules amend the audited financial statement regulations (WAC 284-07-110 and 284-07-150) to incorporate an amendment of the National Association of Insurance Commissioners' Accreditation Standards. The amendment will: (1) Prohibit the commissioner from recognizing a person or firm as a qualified independent certified public accountant if the person or firm has entered into an indemnification agreement with respect to the audit and (2) permit the agreement between an insurer and its qualified independent certified accountant to include an arbitration and/or mediation provision.
Reasons Supporting Proposal: Insurers must file audited financial statements for each calendar year with the commissioner by June of the following year. Effective December 31, 2008, an NAIC accreditation standard related to the audited financial statements filed with the commissioner becomes effective. The new standard applies to CY 2008 statements filed by June, 2009. The standard prohibits the engagement agreements between an individual or firm and an insurer from requiring the insurer to indemnify the individual or firm in relation to the audit. If an engagement agreement contains an indemnification provision as described, the commissioner is prohibited from recognizing the individual or firm preparing the audited financial statement as a qualified independent certified public accountant. To retain its NAIC accreditation the office of insurance commissioner must have these regulations in place; the regulated entities must be aware of the requirement immediately to ensure their engagement agreements qualify the certified public accountants as independent. In addition, the rule permits these engagement agreements to provide for mediation or arbitration as a dispute resolution tool.
Statutory Authority for Adoption: RCW 48.02.060, 48.05.250, 48.44.095, 48.46.080, 48.46.200, 48.125.090.
Statute Being Implemented: RCW 48.05.250, 48.44.095, 48.46.080, 48.46.200, 48.125.090.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Mike Kreidler, insurance commissioner, governmental.
Name of Agency Personnel Responsible for Drafting: Jim Tompkins, P.O. Box 40258, Olympia, WA 98504-0258, (360) 725-7036; Implementation: Dennis Julnes, P.O. Box 40259, Olympia, WA 98504-0259, (360) 725-7209; and Enforcement: Jim Odiorne, P.O. Box 40259, Olympia, WA 98504-0259, (360) 725-7214.
December 22, 2008
AMENDATORY SECTION(Amending Matter No. R 2002-07, filed 10/23/02, effective 11/23/02)
WAC 284-07-110 Definitions. For the purposes of this regulation the following definitions shall apply:
(1) "Audited financial report" means and includes those items specified in WAC 284-07-130.
(2) "Accountant" and "independent certified 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 they are licensed to practice; for Canadian and British companies, the terms mean a "Canadian-chartered or British-chartered accountant."
(3) "Indemnification" means an agreement of indemnity or a release of liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the insurer or its representatives.
(4) "Insurer" has the same meaning as set forth in RCW 48.01.050. It also includes health care service contractors registered under chapter 48.44 RCW, health maintenance organizations registered under chapter 48.46 RCW, and fraternal benefit societies registered under chapter 48.36A RCW.
(4))) (5) "NAIC" means National Association of
(5))) (6) "Policy holder" shall also mean subscriber.
[Statutory Authority: RCW 48.02.060, 48.44.050, and 48.46.200. 02-21-120 (Matter No. R 2002-07), § 284-07-110, filed 10/23/02, effective 11/23/02. Statutory Authority: RCW 48.02.060, 48.43.140, 48.44.050 and 48.46.200. 94-04-045 (Order R 94-2), § 284-07-110, filed 1/27/94, effective 2/27/94. Statutory Authority: RCW 48.02.060. 92-19-040 (Order R 92-10), § 284-07-110, filed 9/9/92, effective 10/10/92.]
(a) Is not in good standing with the American Institute of Certified Public Accountants (AICPA) 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; or
(b) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as an indemnification) with respect to the audit of the insurer.
(2) Except as otherwise provided herein, an independent certified public accountant shall be recognized as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and the code of professional conduct of the state of Washington board of public accountancy, or similar applicable code.
(3) A qualified independent certified public accountant may enter into any agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under chapters 48.31 and 48.99 RCW, the mediation or arbitration provisions shall operate at the option of the statutory successor.
(4) No partner or other person responsible for rendering a report may act in that capacity for more than seven consecutive years. Following any period of service such 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 following factors in determining if the relief should be granted:
(a) Number of partners, expertise of the partners, or the number of insurance clients in the currently registered firm;
(b) Premium volume of the insurer; and
(c) Number of jurisdictions in which the insurer transacts business.
The requirements of this subsection shall become effective two years after the enactment of this regulation.
(4))) (5) The commissioner shall not recognize as a
qualified independent certified public accountant, nor accept
any annual audited financial report, prepared in whole or in
part by, any natural person who:
(a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices under federal or state law;
(b) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this rule; or
(c) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this rule.
(5))) (6) The commissioner as provided in RCW 48.02.060
may hold a hearing to determine whether a certified public
accountant is qualified and, considering the evidence
presented, may rule that the accountant is not qualified for
purposes of expressing his or her opinion on the financial
statements in the annual audited financial report made
pursuant to this regulation and require the insurer to replace
the accountant with another whose relationship with the
insurer is qualified within the meaning of this regulation.
[Statutory Authority: RCW 48.02.060. 92-19-040 (Order R 92-10), § 284-07-150, filed 9/9/92, effective 10/10/92.]