§ 147.4. Contents of annual audited financial report.
(a) The annual audited financial report shall reflect the financial condition of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department. Statutory accounting practices are those practices and procedures prescribed by the Accounting Practices and Procedures Manuals published by the National Association of Insurance Commissioners, or as otherwise prescribed or provided by specific statutes, regulations, orders or rulings of the Commonwealth or the Department.
(b) The annual audited financial report must, at a minimum, include the following:
(1) Financial statements that present in a comparable manner, as of the end of the current and the preceding calendar year, the financial condition of the insurer, including the following:
(i) Statement of admitted assets, liabilities, capital and surplus.
(ii) Statement of operations.
(iii) Statement of cash flows.
(iv) Statement of changes in capital and surplus.
(2) Notes to financial statements. These notes shall be those required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and Accounting Practices and Procedures Manual. The notes must include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed with the Department, with a written description of the nature of these differences, particularly with respect to surplus or stockholder equity and the results of operations. The Commissioner may require the insurer to file an amendment to its annual statement with the Department, the NAIC and other states in which the insurer is licensed, to reflect differences between the audited statutory financial statement and the annual statement filed with the Department within 60 days of the filing date of the audited financial report. The Commissioner may require amendments to financial statements to be filed with the Department and the NAIC in a form of electronic transmission acceptable to the Commissioner.
(3) The report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, communication of internal control related matters noted in the audit in accordance with AU section 325 of the Professional Standards of the American Institute of Certified Public Accountants (SAS 112) Communicating Internal Control Related Matters Identified in an Audit, or its replacement, and letter of qualifications of the independent certified public accountant.
(c) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Department, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. In the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted if sufficient detail is made available to the Department upon request. An account which represents less than 5% of the insurer’s admitted assets may be aggregated for reporting purposes, except that all invested asset accounts shall be separately reported.
(d) If an error is discovered after a report is filed, the independent certified public accountant shall withdraw the report and issue a corrected report to the insurer and to the Department within 30 days of the date the independent certified public accountant becomes aware of the discovery of the error. To the extent that the error requires an amendment to the insurer’s annual financial statement filed with the Department, the insurer shall file, within 60 days of the date the corrected report is issued, an amendment to its annual statement with the Department, the National Association of Insurance Commissioners and other states in which the insurer is licensed, to reflect differences between the corrected audited statutory financial statement and the annual statement filed with the Department and including reconciling notes as required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and Accounting Practices and Procedures Manual. The Commissioner may require amendments to financial statements to be filed with the Department and the National Association of Insurance Commissioners in a form of electronic transmission acceptable to the Commissioner.
(e) Subsections (a)—(d) do not apply to continuing care providers. The annual audited financial report for a continuing care provider shall comply with the following:
(1) The annual audited financial report for a nonprofit continuing care provider shall reflect its financial condition as of the end of its most recent fiscal year and the results of its activities, cash flows and changes in net assets for the fiscal year then ended in conformity with generally accepted accounting principles. The annual audited financial report shall, at a minimum, include the following:
(i) Financial statements that present in a comparable manner, as of the end of the current and the preceding fiscal year, or the period of time that the continuing care provider has been in existence, whichever is shorter, the financial condition of the continuing care provider, including balance sheet, statements of activities, cash flows, changes in net assets and notes to financial statements.
(ii) Report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, report on significant deficiencies in internal controls and letter of qualifications of the independent certified public accountant.
(2) The annual audited financial report for a for-profit continuing care provider shall reflect its financial condition as of the end of its most recent fiscal year and the results of its operations, cash flows and changes in shareholder’s equity for the year then ended in conformity with generally accepted accounting principles. The annual audited financial report shall, at a minimum, include the following:
(i) Financial statements that present in a comparable manner, as of the end of the current and the preceding fiscal year, or the period of time that the continuing care provider has been in existence, whichever is shorter, the financial condition of the continuing care provider, including balance sheet, statements of net income, cash flows, shareholder’s equity and comprehensive income, and notes to financial statements.
(ii) Report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, report on significant deficiencies in internal controls and letter of qualifications of the independent certified public accountant.
(3) If an error is discovered after an annual audited financial report is filed, the independent certified public accountant shall withdraw the report and issue a corrected report within 30 days of the date the independent certified public accountant becomes aware of the discovery of the error.
Authority The provisions of this § 147.4 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007, 1605(a)(3)(ii) and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967, 1605(a)(3)(ii) and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); section 630 of the act of May 17, 1921 (P.L. 682, No. 284) (40 P.S. § 764a); sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225); section 602 of the Fraternal Benefit Societies Code (40 P.S. § 1142.602) (Repealed); and section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731).
Source The provisions of this § 147.4 amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended April 13, 2001, effective April 14, 2001, 31 Pa.B. 2002; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305322) to (305325).
Cross References This section cited in 31 Pa. Code § 147.2 (relating to definitions); 31 Pa. Code § 147.7 (relating to consolidated or combined audits); 31 Pa. Code § 147.9a (relating to establishment and communication of internal control over financial reporting); and 31 Pa. Code § 147.9b (relating to management’s report of internal control over financial reporting).
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