Insurance Financial Statement Audit Services

Insurance companies are highly regulated, and the financial reporting process can be complex for someone who is not familiar with the requirements for insurance companies. Depending on the financial reporting requirements regulated by the various state insurance departments, one of the following filings may be required for your reporting entity:

Annual filing of financial statements, audited by an independent auditor, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Quarterly financial statements (unaudited) and annual financial statements, audited by an independent auditor, in each state the reporting entity is domiciled or licensed. Depending on the requirements of each state, the quarterly and annual financial statements must be filed with the National Association of Insurance Commissioners (NAIC) and/or the state insurance department. The financial statements are prepared in conformity with accounting practices prescribed or permitted by the domiciliary state.

LBMC’s Insurance Experts have extensive knowledge and expertise with the financial reporting process regulated by the various states, including the differing accounting standards that apply to insurance companies. If you are looking for an independent auditor for your financial statements that can also provide some insight on the financial reporting requirements that apply to you, we are here to help. LBMC’s Insurance Experts perform audits for the following insurance companies:

Medicare Advantage (MA) Plans organized as a health maintenance organization (HMO)
Captive insurance companies or risk retention groups
Various other insurance companies

What is the NAIC and the NAIC Model Audit Rule?

In order to promote uniformity among the various states, the National Association of Insurance Commissioners (NAIC) promulgates that financial statements are prepared on forms (also referred to as “Blanks”) which vary by insurance industry. In addition, the NAIC created the Accounting Practices and Procedures Manual (the “Manual”) which is a comprehensive guide to and codification of statutory accounting principles (SAP), composed of the Preamble, the Statements of Statutory Accounting Principles (SSAPs), and the Appendices. All states have adopted the Manual as a comprehensive basis of accounting if not in conflict with state statutes and/or regulations. If the domiciliary state sets forth accounting guidance that differs from the Manual, reporting entities are required to disclose the departure within the notes to financial statements. The SAP generally differ from GAAP.

The NAIC also created the Annual Financial Reporting Model Regulation (also referred to as the “Model Audit Rule”) with the objective to improve the state insurance department’s surveillance of the financial condition of insurers by requiring (1) an annual audit of financial statements reporting the financial position and the results of operations of insurers by independent certified public accountants, (2) communication of internal control related matters noted in an audit, and (3) management’s report of internal control over financial reporting. The Model Audit Rule also provides model laws and regulations that define filing requirements for annual audited financial reports, including specific information concerning the filing and content of audited financial reports and other related letters and reports that should be filed with the state insurance department. Although the requirements can differ for each state, as not all states have adopted the Model Audit Rule or certain filing requirements differ from the Model Audit Rule, here is an overview of some of the Model Audit Rule filing deadlines:

Designation of Auditor letter must be filed by the reporting entity within 60 days after becoming subject to regulation.
Awareness Letter from Auditor which must be filed by the reporting entity. The Model Audit rule does not specify a due date for it.
Audit Report and Qualification Letter is due June 1. Be aware, certain states require filing by April 1.
Internal Control Letter is due within 60 days after filing of audited financial statements; none if no significant deficiencies noted.
Insurer must notify Commissioner within five days of dismissal or resignation of auditor.

LBMC’s Insurance Experts are very familiar with all the compliance requirements that apply to financial statement audits for each state. As part of the financial statement audit process, we will communicate all the filing requirements to you which will help you stay in compliance!

What are key items to consider for the insurance company audit?

As you prepare for the audit of the insurance reporting entity, we recommend the following to consider before starting the audit process:

Insurance companies generally have to involve an actuary to determine loss reserves, actuarial liabilities, actuarial assets and related items. We recommend engaging a qualified, independent, third-party actuary that provides a statement of actuarial opinion for amounts reported on the audited financial statements. The actuarial opinion should not restrict the auditor from being able to rely on the actuarial opinion. If the Company has an actuary on staff, audit standards require engagement of an independent actuary that provides a statement of actuarial opinion on loss reserves, actuarial liabilities, actuarial assets and related items or similar reporting.
Insurance companies must file a corporate tax return. Therefore, an income tax provision needs to be prepared for the audited financial statements.

As you prepare for the audit, we will go over the above items with you in detail. We have established great relationships with highly qualified experts that can help you prepare for these key audit requirements and connect you as needed.

Medicare Advantage Plans organized as a Health Maintenance Organization (HMO)

Financial Reporting/Audit Requirements

Generally, state insurance departments require health maintenance organizations to follow the NAIC financial reporting process as well as the NAIC Model Audit Rule described in more detail here. The requirements for each state can differ from the model requirements established by the NAIC. However, LBMC’s Insurance Experts can guide you through the different requirements for each state.

In addition to filing audited financial statements with the NAIC and/or the state insurance department, Medicare Advantage Plans or Medicare Advantage Organizations (MAO) must comply with the Fiscal Soundness Reporting Requirements (FSRR) established by the Centers for Medicare & Medicaid Services (CMS). Based on the CMS FSSR, MAOs that have active (initial and renewing) contracts must comply with the FSSR requirements. These include filing of audited financial statements in accordance with GAAP, unless the domestic state’s requirements differ, due within 120 days of the contract’s fiscal year end unless CMS has granted an extension. In addition to the audited annual submission, organizations are required to submit quarterly financial statements for their first contract year, or if the organization fails to meet CMS fiscal soundness requirements.

Captive Insurance Companies

What is it?

The NAIC describes it best. “In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured. They are typically established to meet the unique risk-management needs of the owners or members. Additionally, they provide potentially significant tax advantages, which can prove integral to longevity and company profitability. Captives are formed to cover a wide range of risks; practically every risk underwritten by a commercial insurer can be provided by a captive. Once established, the captive operates like any commercial insurance company and is subject to state regulatory requirements including reporting, capital and reserve requirements.”

Financial Reporting/Audit Requirements

Generally, captive insurance companies have to file audited GAAP financial statements with the state insurance departments. However, the financial reporting requirements can differ for each state. LBMC’s Insurance Experts can guide you through the process and make sure you file the appropriate set of financial statements at the right time.

What is the NAIC and the NAIC Model Audit Rule?

What are key items to consider for the insurance company audit?

Medicare Advantage Plans organized as a Health Maintenance Organization (HMO)

Financial Reporting/Audit Requirements

Captive Insurance Companies

What is it?

Financial Reporting/Audit Requirements

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