Bulletin 2009-19 - R 69-70 Model Audit Rule to Captives

South Carolina Department of Insurance Capitol Center 1201 Main Street, Suite 1000 Columbia, South Carolina 29201 Mailing Address: P. 0. Box 100105, Columbia, SC 29202-3105 Telephone: (803) 737-6160 BULLETIN 2009-19 MARK SANFORD Governor SCOTT RICHARDSON Director oflnsurance TO: All Captive Insurers and Special Purpose Financial Captives Authorized to Transact Business in South Carolina FROM: S~ott H. Richardson, CPCU~ ~ Director ~ SUBJECT: Supplement to Bulletin 2009-06 Implementation of Regulation 69-70, Annual Audited Financial Reporting Regulation DATE: October 1, 2009 I. PURPOSE AND SCOPE On May 22, 2009, S.C. Code Ann. Regulation 69-70, the Annual Audited Financial Reporting Regt!lation (Regulation), became final upon publication in the State Register. The ~outh Carolina Department of Insurance (Department) is charged with the responsibility of enforcing the provisions set forth in the Regulation. The Department has issued a separate bulletin, Bulletin 2009-06, to provide an overview of. the Regulation and to specify the application of this Regulation to insurers other than captive insurers and special purpose financial captives. This bulletin supplements Bulletin 2009-06 and applies to any captive insurer or special purpose financial captive subject to the Regulation. Unless the context clearly requires otherwise, for purposes of this bulletin, the term "insurer" only applies to captive insurers and special purpose financial captives. The purpose of this bulletin is to 1) set forth certain procedural requirements related to the application of the Regulation to captive insurers and special purpose financial captives and 2) outline the procedures for requesting an exemption from any provision or requirement of the Regulation. The Regulation is generally effective for reporting periods ending December 31, 2010. An Implementation Guide has been published by the National Association of Insurance Commissioners to assist insurers in planning and preparing for compliance with the new requirements when they become effective. A copy of the Implementation Guide is included as Exhibit 4 to Bulletin 2009-06. The Implementation Guide may also be found on the home page of the National Association of Insurance Commissioners' website, www.naic.org. II. PROCEDURAL REQUIREMENTS RELATING TO THE REGULATION A. Accounting Principles The Regulation that the <UllJlU<U insurer conformity insurer's state of domicile. the financial position of the ""''w'i"""rr practices prescribed, or othenvise permitted, by the Pursuant to S.C. Code Sections 38-90-70(B) and 38-90-550(C), the statutory accounting practices prescribed, or othenvise permitted, for each insurer shall be accepted accounting principles, unless Director of the Department of Insurance (Director) approves or requires in accordance with applicable law the use of statutory accounting principles for such insurer, with useful or necessary modifications or adaptations required or approved or accepted by the Director for the type of insurance and kind of insurer to be reported upon, and as supplemented by additional information required by the Director. B. Applicability of Regulation 69-60 In the case of a conflict between a provision of Regulation 69-60 and a provision of Regulation 69- 70, the latter controls. In no event shall an insurer be exempt from any of the provisions of Regulation 69-60 as the result of receiving an exemption from all or a part of the provisions of Regulation 69-70. III. PROCEDURE FOR REQUESTING AN EXEMPTION The following exemptions apply: A. Premium and Policyltolders or Certijicateltolders Exemptions An insurer having direct premiums written in South Carolina of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificateholders of direct written policies nationwide at the end of the calendar year shall be exempt from the Regulation for the year (unless the Director makes a specific finding that compliance is necessary for the Director to carry out statutory responsibilities) except 'that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt. All premiums written or assumed by an insurer shall be deemed to be written in this state for purposes of determining whether this exemption applies to such insurer. In order to claim this exemption, the insurer must complete and submit the attached "Annual Audited Financial Reports - Premium and Policyholders or Certificateholders Exemption Affidavit - Captive Insurers and Special Purpose Financial Captives," labeled as Exhibit 1, by March 1 of the reporting vear immediately following the vear for which the exemption is being claimed. B. Financial or Organizational Hardsltip Exemptions The Director may grant an exemption from compliance with any provision or requirement of the Regulation if the Director finds, upon review of a vvTitten application of the insurer, that compliance with the Regulation would constitute a financial or organizational hardship upon the insurer. In order to apply for an exemption, the insurer must complete and submit the attached "Annual Audited Financial Reports Financial or Organizational Hardship Exemption Affidavit - Captive Insurers and Special Purpose Financial Captives," labeled as Exhibit 2. An insurer wishing to obtain an exemption prior to the effective date of the Regulation must submit the affidavit by December 31, 2009. The deadline for submission of the affidavit is March 1 of the first reporting year for which the exemption is being requested. An exemption may at any time and from time to time a specified period or periods. Within ten days from a denial of the written an from the Regulation, the insurer may request in writing a pursuant to statute, on application for an exemption. The hearing shall be held accordance with South Carolina law to administrative hearing procedures. IV. QUESTIONS Questions regarding this Bulletin should be submitted in writing to: Leslie Jones, Deputy Director South Carolina Department of Insurance 145 King Street, Suite 228 Charleston, South Carolina 29401 Facsimile: (843) 722-6105 E-mail: LJones@doi.sc.gov V. APPENDIX The following exhibits are attached: Exhibit 1: Exhibit 2: Annual Audited Financial Reports- Premium and Policyholders or Certificateholders Exemption Affidavit - Captive Insurers and Special Purpose Financial Captives Annual Audited Financial Reports - Financial or Organizational Hardship Exemption Affidavit - Captive Insurers and Special Purpose Financial Captives Bulletins are the method by which the Director of Insurance formally communicates with persons and entities regulated by the Department. Bulletins are of South Carolina insurance laws and regulations and provide guidance on the Department's enforcement Bulletins do not provide advice. Readers should consult applicable statutes and regulations or contact an attorney for advice or for additional information on the impact of that on their situation.