- New York Adopts Revisions to Regulation 118 Governing Audited Financial Statements
- January 13, 2010
- Law Firm: Edwards Angell Palmer & Dodge LLP - Boston Office
On December 28, 2009, the New York Insurance Department (“NYID”) issued a Notice of Emergency adoption revising Regulation 118 to implement new audit and reporting standards on an emergency basis. The revised Regulation is modeled on the NAIC Financial Reporting Model Regulation which applies certain public company reporting standards set forth in the Sarbanes-Oxley Act of 2002, to insurers, fraternal benefit societies and managed care organizations.
Among other things, Regulation 118 requires:
- Companies to annually file audited financial reports with the Superintendent;
- Designation of an audit committee that is responsible for the appointment, compensation and oversight of the company’s auditor,
- Designation of a qualified CPA to conduct the audit and notice to the Superintendent by March 1, 2010 of the name, address, telephone number and email address of such CPA,
- Communication from the CPA stating whether the CPA has noted any unremediated material weakness in the company’s internal controls over its financial reporting during the audit; and
- Companies with $500 million or more in direct and assumed premium to file a report with the Superintendent regarding its assessment of internal controls over financial reporting.
With respect to creation of an audit committee, Regulation 118 requires, based on the insurer’s premium volume, that the audit committees of some companies be comprised of a percentage of independent members. Companies meeting certain requirements may request an exemption from the Superintendent based on hardship. Companies which are compliant with Sarbanes-Oxley, or which are direct or indirect wholly-owned subsidiaries of Sarbanes-Oxley compliant companies are not subject to the audit committee requirements. Also, domestic life companies subject to New York Insurance Law Section 1202(b)(2) (imposing specific independence requirements for domestic life companies), and foreign or alien insurers which did not enter New York through an United States branch, are not subject to the audit committee requirements.
Regulation 118 went into effect upon publication in the State Register on December 29, 2009 and applies to the reporting period ending December 31, 2010.