Code of Vermont Rules › Agency 21 - DEPARTMENT OF FINANCIAL REGULATION › Sub-Agency 020 - INSURANCE DIVISION › Chapter 063 - ANNUAL FINANCIAL REPORTING REGULATION FOR RISK RETENTION GROUPS CHARTERED IN VERMONT (C-2012-1) › Section 21 020 063 - ANNUAL FINANCIAL REPORTING REGULATION FOR RISK RETENTION GROUPS CHARTERED IN VERMONT (C-2012-1)

Current through June, 2024
Section 1 Authority
This Regulation is promulgated under the authority granted
				  the Commissioner of the Department of Banking, Insurance, Securities and Health
				  Care Administration pursuant to
				  8 V.S.A.
				  §§
											15 and
				  3578a.
Section 2 Purpose and Scope
The purpose of this regulation is to improve the Department's
				  surveillance of the financial condition of RRGs by requiring (1) an annual
				  audit of financial statements reporting the financial position and the results
				  of operations of RRGs 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.
Every RRG (as defined in Section
				  3 ) shall be
				  subject to this regulation. RRGs having less than 1,000 policyholders or
				  certificateholders of direct written policies nationwide at the end of the
				  calendar year shall be exempt from this regulation for the year (unless the
				  Commissioner makes a specific finding that compliance is necessary for the
				  Commissioner to carry out statutory responsibilities)
This regulation shall not prohibit, preclude or in any way
				  limit the commissioner from ordering or conducting or performing examinations
				  of RRGs under the rules and regulations of the Department and the practices and
				  procedures of the Department.
Section
				3 Definitions
The terms and definitions contained herein are intended to
				  provide definitional guidance as the terms are used within this
				  regulation.
A. "Accountant" or
				"independent certified public accountant" means an independent certified public
				accountant or accounting firm in good standing with the American Institute of
				Certified Public Accountants (AICPA) and in all states in which he or she is
				licensed to practice.
B. An
				"affiliate" of, or person "affiliated" with, a specific person, is a person
				that directly, or indirectly through one or more intermediaries, controls, or
				is controlled by, or is under common control with, the person
				specified.
C. "Audit committee"
				means a committee (or equivalent body) established by the board of directors
				(or equivalent governing body) of an entity for the purpose of overseeing the
				accounting and financial reporting processes of an RRG or group of Insurers ,
				and audits of financial statements of the RRG or group of Insurers . The audit
				committee of any entity that controls a group of Insurers may be deemed to be
				the audit committee for one or more of these controlled RRGs solely for the
				purposes of this regulation at the election of the controlling person. Refer to
				Section 14E for exercising this election. If an audit committee is not
				designated by the RRG, the RRG's entire board of directors shall constitute the
				audit committee.
D. "Audited
				financial report" means and includes those items specified in Section
				5 of this
				regulation.
E. "Indemnification"
				means an agreement of indemnity or a release from 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 RRG or its representatives.
F. "Independent board member" has the same
				meaning as described in Section 14C.
G. "Risk Retention Group" or "RRG" means a
				risk retention group licensed or authorized under Ch. 141 of Title 8, Vermont
				Statutes Annotated.
G. 1 "Insurer"
				means an insurer licensed or authorized under Ch. 101 of Title 8, Vermont
				Statutes Annotated.
H. "Group of
				insurers" means those licensed insurers and/or RRGs included in the reporting
				requirements of Subchapter 13, Chapter 101 of Title 8, Vermont Statutes
				Annotated, or a set of insurers and/or RRGs as identified by management, for
				the purpose of assessing the effectiveness of Internal control over financial
				reporting.
I. "Internal control
				over financial reporting" means a process effected by an entity's board of
				directors, management and other personnel designed to provide reasonable
				assurance regarding the reliability of the financial statements, i.e., those
				items specified in Section 5B through 5G of this regulation and includes those
				policies and procedures that:
(1) Pertain to
				the maintenance of records that, in reasonable detail, accurately and fairly
				reflect the transactions and dispositions of assets;
(2) Provide reasonable assurance that
				transactions are recorded as necessary to permit preparation of the financial
				statements, i.e., those items specified in Section 5B through 5G of this
				regulation and that receipts and expenditures are being made only in accordance
				with authorizations of management and directors; and
(3) Provide reasonable assurance regarding
				prevention or timely detection of unauthorized acquisition, use or disposition
				of assets that could have a material effect on the financial statements, i.e.,
				those items specified in Section 5B through 5G of this regulation.
J. "SEC" means the United States
				Securities and Exchange Commission.
K. " Section 404 " means Section 404 of the
				Sarbanes-Oxley Act of 2002 and the SEC's rules and regulations promulgated
				thereunder.
L. " Section 404
				Report" means management's report on "internal control over financial
				reporting" as defined by the SEC and the related attestation report of the
				independent certified public accountant as described in Section 3A.
M. "SOX Compliant Entity" means an entity
				that either is required to be compliant with, or voluntarily is compliant with,
				all of the following provisions of the Sarbanes- Oxley Act of 2002:
(i) the preapproval requirements of Section
				201 ( Section
				10A(i) of the Securities Exchange Act of 1934);
(ii) the Audit committee independence
				requirements of Section
				301
				( Section 10A(m)(3) of the Securities Exchange Act of 1934); and
(iii) the Internal control over financial
				reporting requirements of Section 404 (Item 308 of SEC Regulation
				S-K).