# Title 45 — Insurance, Commissioner of

## Article 45-03 — Regulation of Insurance Companies

## Chapter 45-03-20 — Annual Financial Reporting Model Regulation

Financial Report and Audit Committee Appointment
Workpapers
Documents
### § 45-03-20-01. Purpose and scope.

1. The purpose of this chapter is to improve the North Dakota insurance department's
surveillance of the financial condition of insurers by requiring:
a. An annual audit of financial statements reporting the financial position and the results of
operations of insurers by independent certified public accountants;
b. Communication of internal control-related matters noted in an audit; and
c. Management's report of internal control over financial reporting.
2. Every insurer, as defined in section 45-03-20-02, is subject to this chapter, except a company,
so defined, which is licensed only in North Dakota. The commissioner may exempt an insurer,
or type of insurer, from the requirements of this chapter. Insurers having direct premiums
written in this state of less than one million dollars in any calendar year and less than one
thousand policyholders or certificate holders of direct written policies nationwide at the end of
the calendar year are exempt from this chapter for that year, unless the commissioner makes
a specific finding that compliance is necessary for the commissioner to carry out statutory
responsibilities, except that insurers having assumed premiums pursuant to contracts or
treaties of reinsurance of one million dollars or more will not be so exempt.
3. Foreign or alien insurers filing the audited financial report in another state, pursuant to the
other state's requirement for filing of audited financial reports which has been found by the
commissioner to be substantially similar to the requirements herein, are exempt from sections
a. A copy of the audited financial report, communication of internal control-related matters
noted in an audit, and the accountant's letter of qualifications which are filed with another
state are filed with the commissioner in accordance with the filing dates specified in

sections 45-03-20-03, 45-03-20-10, and 45-03-20-11, respectively. Canadian insurers
may submit accountants' reports as filed with the office of the superintendent of financial
institutions, Canada.
b. A copy of any notification of adverse financial condition report filed with another state is
filed with the commissioner within the time specified in section 45-03-20-09.
4. Foreign or alien insurers required to file management’s report of internal control over financial
reporting in another state are exempt from filing the report in this state provided the other state
has substantially similar reporting requirements and the report is filed with the commissioner
of the other state within the time specified.
5. This chapter may not prohibit, preclude, or in any way limit the insurance commissioner from
ordering or conducting or performing examinations of insurers under the rules and regulations
of the North Dakota insurance department and the practices and procedures of the North
Dakota insurance department.
History: Effective October 1, 1995; amended effective April 1, 1996; April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-02. Definitions.

The terms and definitions in this section are intended to provide definitional guidance as the terms
are used within this chapter.
1. "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 and in all states in which they are licensed to practice. For Canadian and
British companies, it means a Canadian-chartered or British-chartered accountant.
2. 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.
3. "Audit committee" means a committee or equivalent body established by the board of directors
of an entity for the purpose of overseeing the accounting and financial reporting processes of
an insurer or group of insurers, the internal audit function of an insurer or group of insurers, if
applicable, and external audits of financial statements of the insurer 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 insurers solely for the purposes of this chapter
at the election of the controlling person. Refer to subsection 6 of section 45-03-20-12.1 for
exercising this election. If an audit committee is not designated by the insurer, the insurer's
entire board of directors shall constitute the audit committee.
4. "Audited financial report" means and includes those items specified in section 45-03-20-04.
5. "Group of insurers" means those licensed insurers included in the reporting requirements of
North Dakota Century Code chapter 26.1-10, or a set of insurers as identified by
management, for the purpose of assessing the effectiveness of internal control over financing
reporting.
6. "Indemnification" means an agreement of indemnity or a release from liability if the intent or
effect is to shift or limit in any manner the potential liability of a 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 insurer or its representatives.

7. "Independent board member" has the same meaning as described in subsection 4 of section
45-03-20-12.1.
8. "Insurer" means a licensed insurer as defined in North Dakota Century Code chapter 26.1-02.
9. "Internal audit function" means a person or persons that provide independent, objective, and
reasonable assurance designed to add value and improve an organization's operations and
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes.
10. "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, that is those items specified in
subsections 2 through 7 of section 45-03-20-04 and includes those policies and procedures
that:
a. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of assets;
b. Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of the financial statements, i.e., those items specified in subsections 2
through 7 of section 45-03-20-04 and that receipts and expenditures are being made only
in accordance with authorizations of management and directors; and
c. 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 subsections 2 through 7 of section 45-03-20-04.
11. "Section 404" means section 404 of the Sarbanes-Oxley Act of 2002 [Pub. L. 107-204; 116
Stat. 745] and the United States securities and exchange commission’s rules and regulations
promulgated thereunder.
12. "Section 404 report" means management’s report on internal control over financial reporting
as defined by the United States securities and exchange commission and the related
attestation report of the independent certified public accountant as described in subsection 1.
13. "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
[Pub. L. 107-204; 116 Stat. 745]:
a. The preapproval requirements of section 201 (section 10A(i) of the Securities Exchange
Act of 1934 [Pub. L. 73-291; 48 Stat. 881]);
b. The audit committee independence requirements of section 301 (section 10A(m)(3) of
the Securities Exchange Act of 1934 [Pub. L. 73-291; 48 Stat. 881]; and
c. The internal control over financial reporting requirements of section 404 (item 308 of the
United States securities and exchange commission regulation S-K).
History: Effective October 1, 1995; amended effective January 1, 2008; April 1, 2010; April 1, 2017.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1

### § 45-03-20-03. General requirements related to filing and extensions for filing of annual

audited financial reports and audit committee appointment.
1. All insurers shall have an annual audit by an independent certified public accountant and shall
file an audited financial report with the commissioner on or before June first for the year ended
December thirty-first immediately preceding. The commissioner may require an insurer to file
an audited financial report earlier than June first with ninety days' advance notice to the
insurer.
2. Extensions of the June first filing date may be granted by the commissioner for thirty-day
periods upon showing by the insurer and its independent certified public accountant the
reasons for requesting an extension and determination by the commissioner of good cause for
an extension. The request for extension must be submitted in writing not less than ten days
prior to the due date in sufficient detail to permit the commissioner to make an informed
decision with respect to the requested extension.
3. If an extension is granted in accordance with the provisions in subsection 2 of section
45-03-20-03, a similar extension of thirty days is granted to the filing of management's report
of internal control over financial reporting.
4. Every insurer required to file an annual audited financial report pursuant to this chapter shall
designate a group of individuals as constituting its audit committee, as defined in section
### § 45-03-20-02. The audit committee of an entity that controls an insurer may be deemed to be

the insurer's audit committee for purposes of this chapter at the election of the controlling
person.
History: Effective October 1, 1995; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-04. Contents of annual audited financial report.

The annual audited financial report must report the financial position of the insurer as of the end of
the most recent calendar year and the results of its operations, cashflows, and changes in capital and
surplus for the year then ended in conformity with statutory accounting practices prescribed, or
otherwise permitted, by the department of insurance of the state of domicile.
The annual audited financial report must include the following:
1. Report of independent certified public accountant.
2. Balance sheet reporting admitted assets, liabilities, capital, and surplus.
3. Statement of operations.
4. Statement of cashflows.
5. Statement of changes in capital and surplus.
6. Notes to financial statements. These notes must be those required by the appropriate national
association of insurance commissioners annual statement instructions and the national
association of insurance commissioners accounting practices and procedures manual. These
notes must include a reconciliation of differences, if any, between the audited statutory
financial statements and the annual statement filed pursuant to North Dakota Century Code
section 26.1-03-07 with a written description of the nature of these differences.

7. The financial statements included in the audited financial report must 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 commissioner, and the financial statement must
be comparative, presenting the amounts as of December thirty-first of the current year and the
amounts as of the immediately preceding December thirty-first. However, in the first year in
which an insurer is required to file an audited financial report, the comparative data may be
omitted.
History: Effective October 1, 1995; amended effective August 1, 2000; April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-05. Designation of independent certified public accountant.

1. Each insurer required by this chapter to file an annual audited financial report within sixty days
after becoming subject to the requirement, shall register with the commissioner in writing the
name and address of the independent certified public accountant or accounting firm retained
to conduct the annual audit under this chapter. Insurers not retaining an independent certified
public accountant on October 1, 1995, shall register the name and address of their retained
independent certified public accountants not less than six months before the date when the
first audited financial report is to be filed.
2. The insurer shall obtain a letter from the accountant and file a copy with the commissioner
stating that the accountant is aware of the provisions of the insurance code and the rules and
regulations of the insurance department of the state of domicile that relate to accounting and
financial matters and affirming that the accountant will express an opinion on the financial
statements in terms of their conformity to the statutory accounting practices prescribed or
otherwise permitted by that department, specifying the exceptions as the accountant may
believe appropriate.
3. If an accountant who was the accountant for the immediately preceding filed audited financial
report is dismissed or resigns, the insurer shall within five business days notify the
commissioner of this event. The insurer shall also furnish the commissioner with a separate
letter within ten business days of the above notification stating whether in the twenty-four
months preceding the event there were any disagreements with the former accountant on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope
or procedure; which disagreements, if not resolved to the satisfaction of the former
accountant, would have caused the accountant to make reference to the subject matter of the
disagreement in connection with the accountant's opinion. The disagreements required to be
reported in response to this section include both those resolved to the former accountant's
satisfaction and those not resolved to the former accountant's satisfaction. Disagreements
contemplated by this section are those that occur at the decisionmaking level, that is between
personnel of the insurer responsible for presentation of its financial statements and personnel
of the accounting firm responsible for rendering its report. The insurer shall also in writing
request the former accountant to furnish a letter addressed to the insurer stating whether the
accountant agrees with the statements contained in the insurer's letter and, if not, stating the
reasons for which the accountant does not agree; and the insurer shall furnish the responsive
letter from the former accountant to the commissioner together with its own.
History: Effective October 1, 1995; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1

### § 45-03-20-06. Qualifications of independent certified public accountant.

1. The commissioner shall not recognize any person or firm as a qualified independent certified
public accountant if the person or firm:
a. Is not in good standing with the American institute of certified public accountants and in
all states in which the accountant is licensed to practice, or, for a Canadian or British
company, that is not a chartered accountant; or
b. Has either directly or indirectly entered into an agreement of indemnity or release from
liability, collectively referred to as indemnification, with respect to the audit of the insurer.
2. Except as otherwise provided in this chapter, the commissioner shall recognize an
independent certified public accountant as qualified as long as the independent certified public
accountant conforms to the standards of the independent certified public accountant's
profession, as contained in the code of professional ethics of the American institute of certified
public accountants and rules and regulations and code of ethics and rules of professional
conduct of the North Dakota board of accountancy, or similar code.
3. A qualified independent certified public accountant may enter into an agreement with an
insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in
the event of a delinquency proceeding commenced against the insurer under North Dakota
Century Code chapter 26.1-06.1, the mediation or arbitration provisions shall operate at the
option of the statutory successor.
4. a. The lead or coordinating audit partner having primary responsibility for the audit may not
act in that capacity for more than five consecutive years. The person must be disqualified
from acting in that or a similar capacity for the same company or its insurance
subsidiaries or affiliates for a period of five consecutive years. An insurer may make
application to the commissioner for relief from the above rotation requirement on the
basis of unusual circumstances. This application should be made at least thirty days
before the end of the calendar year. The commissioner may consider the following
factors in determining if the relief should be granted:
(1) Number of partners, expertise of the partners, or the number of insurance clients in
the currently registered firm;
(2) Premium volume of the insurer; or
(3) Number of jurisdictions in which the insurer transacts business.
b. The insurer shall file, with its annual statement filing, the approval for relief from
subdivision a with the states that it is licensed in or doing business in and with the
national association of insurance commissioners. If the nondomestic state accepts
electronic filing with the national association of insurance commissioners, the insurer
shall file the approval in an electronic format acceptable to the national association of
insurance commissioners.
5. The commissioner shall neither recognize as a qualified independent certified public
accountant, nor accept any annual audited financial report, prepared in whole or in part by,
any natural person who:
a. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. Sections 1961-1968, or any dishonest conduct or practices
under federal or state law;

b. Has been found to have violated the insurance laws of this state with respect to any
previous reports submitted under this chapter; or
c. Has demonstrated a pattern or practice of failing to detect or disclose material
information in previous reports filed under the provisions of this chapter.
6. The commissioner may hold a hearing to determine whether an independent certified public
accountant is qualified and, considering the evidence presented, may rule that the accountant
is not qualified for purposes of expressing an opinion on the financial statements in the annual
audited financial report made pursuant to this chapter and require the insurer to replace the
accountant with another whose relationship with the insurer is qualified within the meaning of
this chapter.
7. a. The commissioner shall not recognize as a qualified independent certified public
accountant, nor accept an annual audited financial report, prepared in whole or in part by
an accountant who provides to an insurer, contemporaneously with the audit, the
following nonaudit services:
(1) Bookkeeping or other services relating to the accounting records or financial
statements of the insurer;
(2) Financial information systems design and implementation;
(3) Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
(4) Actuarially oriented advisory services involving the determination of amounts
recorded in the financial statements. The accountant may assist an insurer in
understanding the methods, assumptions, and inputs used in the determination of
amounts recorded in the financial statement only if it is reasonable to conclude that
the services provided will not be subject to audit procedures during an audit of the
insurer’s financial statements. An accountant’s actuary may also issue an actuarial
opinion or certification on an insurer’s reserves if the following conditions have been
met:
(a) Neither the accountant nor the accountant’s actuary has performed any
management functions or made any management decisions;
(b) The insurer has competent personnel or engages a third-party actuary to
estimate the reserves for which management takes responsibility; and
(c) The accountant’s actuary tests the reasonableness of the reserves after the
insurer’s management has determined the amount of the reserves;
(5) Internal audit outsourcing services;
(6) Management functions or human resources;
(7) Broker or dealer, investment adviser, or investment banking services;
(8) Legal services or expert services unrelated to the audit; or
(9) Any other services that the commissioner determines, by regulation, are
impermissible.
b. In general, the principles of independence with respect to services provided by the
qualified independent certified public accountant are largely predicated on three basic
principles, violations of which would impair the accountant’s independence. The

principles are that the accountant cannot function in the role of management, cannot
audit the accountant’s own work, and cannot serve in an advocacy role for the insurer.
8. Insurers having direct written and assumed premiums of less than one hundred million dollars
in any calendar year may request an exemption from subdivision a of subsection 7. The
insurer shall file with the commissioner a written statement discussing the reasons why the
insurer should be exempt from these provisions. If the commissioner finds, upon review of this
statement, that compliance with this chapter would constitute a financial or organizational
hardship upon the insurer, an exemption may be granted.
9. A qualified independent certified public accountant who performs the audit may engage in
other nonaudit services, including tax services, that are not described in subdivision a of
subsection 7 or that do not conflict with subdivision b of subsection 7, only if the activity is
approved in advance by the audit committee, in accordance with subsection 10.
10. All auditing services and nonaudit services provided to an insurer by the qualified independent
certified public accountant of the insurer shall be preapproved by the audit committee. The
preapproval requirement is waived with respect to nonaudit services if the insurer is a
SOX-compliant entity or a direct or indirect wholly owned subsidiary of a SOX-compliant entity
or:
a. The aggregate amount of all such nonaudit services provided to the insurer constitutes
not more than five percent of the total amount of fees paid by the insurer to its qualified
independent certified public accountant during the fiscal year in which the nonaudit
services are provided;
b. The services were not recognized by the insurer at the time of the engagement to be
nonaudit services; and
c. The services are promptly brought to the attention of the audit committee and approved
prior to the completion of the audit by the audit committee or by one or more members of
the audit committee who are the members of the board of directors to whom authority to
grant such approvals has been delegated by the audit committee.
11. The audit committee may delegate to one or more designated members of the audit
committee the authority to grant the preapprovals required by subsection 10. The decisions of
any member to whom this authority is delegated shall be presented to the full audit committee
at each of its scheduled meetings.
12. a. The commissioner shall not recognize an independent certified public accountant as
qualified for a particular insurer if a member of the board, president, chief executive
officer, controller, chief financial officer, or chief accounting officer, or any person serving
in an equivalent position for that insurer, was employed by the independent certified
public accountant and participated in the audit of that insurer during the one-year period
preceding the date that the most current statutory opinion is due. This section shall only
apply to partners and senior managers involved in the audit. An insurer may make
application to the commissioner for relief from the above requirement on the basis of
unusual circumstances.
b. The insurer shall file, with its annual statement filing, the approval for relief from
subdivision a with the states that it is licensed in or doing business in and the national
association of insurance commissioners. If the nondomestic state accepts electronic filing
with the national association of insurance commissioners, the insurer shall file the
approval in an electronic format acceptable to the national association of insurance
commissioners.

History: Effective October 1, 1995; amended effective January 1, 2008; April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-07. Consolidated or combined audits.

An insurer may make written application to the commissioner for approval to file audited
consolidated or combined financial statements in lieu of separate annual audited financial statements if
the insurer is part of a group of insurance companies which utilizes a pooling or one hundred percent
reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer
cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or
combining worksheet must be filed with the report, as follows:
1. Amounts shown on the consolidated or combined audited financial report must be shown on
the worksheet.
2. Amounts for each insurer subject to this section must be stated separately.
3. Noninsurance operations may be shown on the worksheet on a combined or individual basis.
4. Explanations of consolidating and eliminating entries must be included.
5. A reconciliation must be included of any differences between the amounts shown in the
individual insurer columns of the worksheet and comparable amounts shown on the annual
statements of the insurers.
History: Effective October 1, 1995.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-08. Scope of audit and report of independent certified public accountant.

Financial statements furnished under section 45-03-20-04 must be examined by the independent
certified public accountant. The audit of the insurer's financial statements shall be conducted in
accordance with generally accepted auditing standards. In accordance with AU 319 of the professional
standards of the American institute of certified public accountants, consideration of internal control in a
financial statement audit, the independent certified public accountant should obtain an understanding of
internal control sufficient to plan the audit. To the extent required by AU 319, for those insurers required
to file a management’s report of internal control over financial reporting pursuant to section
45-03-20-12.3, the independent certified public accountant should consider, as that term is defined in
statements on auditing standards no. 102, defining professional requirements in statements on auditing
standards or its replacement, the most recently available report in planning and performing the audit of
the statutory financial statements. Consideration shall be given to the procedures illustrated in the
financial condition examiner's handbook promulgated by the national association of insurance
commissioners as the independent certified public accountant deems necessary.
History: Effective October 1, 1995; amended effective January 1, 2008; April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-09. Notification of adverse financial condition.

1. The insurer required to furnish the annual audited financial report shall require the
independent certified public accountant to report, in writing, within five business days to the
board of directors or its audit committee any determination by the independent certified public
accountant that the insurer has materially misstated its financial condition as reported to the
commissioner as of the balance sheet date currently under audit or that the insurer does not

meet the minimum capital and surplus requirement of the North Dakota insurance statute as
of that date. An insurer who has received a report under this section shall forward a copy of
the report to the commissioner within five business days of receipt of the report and shall
provide the independent certified public accountant making the report with evidence of the
report being furnished to the commissioner. If the independent certified public accountant fails
to receive the evidence within the required five-business-day period, the independent certified
public accountant shall furnish to the commissioner a copy of its report within the next five
business days.
2. An independent certified public accountant is not liable in any manner to any person for any
statement made in connection with this section if the statement is made in good faith in
compliance with subsection 1.
3. If the accountant, subsequent to the date of the audited financial report filed under this
chapter, becomes aware of facts that might have affected the accountant's report, the
commissioner notes the obligation of the accountant to take action as prescribed in volume 1,
section AU 561 of the professional standards of the American institute of certified public
accountants.
History: Effective October 1, 1995; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-10. Communication of internal control-related matters noted in an audit.

1. In addition to the annual audited financial report, each insurer shall furnish the commissioner
with a written communication as to any unremediated material weaknesses in its internal
controls over financial reporting noted during the audit. Such communication shall be prepared
by the accountant within sixty days after the filing of the annual audited financial report, and
shall contain a description of any unremediated material weakness, as the term material
weakness is defined by statements on auditing standards no. 60, communication of internal
control-related matters noted in an audit or its replacement, as of December thirty-first
immediately preceding, in the insurer’s internal control over financial reporting noted by the
accountant during the course of the accountant's audit of the financial statements. If no
unremediated material weaknesses were noted, the communication should so state.
2. The insurer is required to provide a description of remedial actions taken or proposed to
correct unremediated material weaknesses, if the actions are not described in the
accountant’s communication.
History: Effective October 1, 1995; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-11. Accountant's letter of qualifications.

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the
annual audited financial report, a letter stating:
1. That the accountant is independent with respect to the insurer and conforms to the standards
of the accountant's profession as contained in the code of professional ethics and
pronouncements of the American institute of certified public accountants and the rules of
professional conduct of the North Dakota board of accountancy, or similar code.
2. The background and experience in general, and the experience in audits of insurers of the
staff assigned to the engagement and whether each is an independent certified public
accountant. Nothing within this chapter may be construed as prohibiting the accountant from

utilizing the staff as deemed appropriate where use is consistent with the standards prescribed
by generally accepted auditing standards.
3. That the accountant understands the annual audited financial report and the accountant's
opinion thereon will be filed in compliance with this chapter and that the commissioner will be
relying on this information in the monitoring and regulation of the financial position of insurers.
4. That the accountant consents to the requirements of section 45-03-20-12 and that the
accountant consents and agrees to make available for review by the commissioner, the
commissioner's designee, or the commissioner's appointed agent, the workpapers, as defined
in section 45-03-20-12.
5. A representation that the accountant is properly licensed by an appropriate state licensing
authority and is a member in good standing in the American institute of certified public
accountants.
6. A representation that the accountant is in compliance with the requirements of section
45-03-20-06.
History: Effective October 1, 1995.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-12. Definition, availability, and maintenance of independent certified public

accountant workpapers.
1. Workpapers are the records kept by the independent certified public accountant of the
procedures followed, the tests performed, the information obtained, and the conclusions
reached pertinent to the independent certified public accountant's audit of the financial
statements of an insurer. Workpapers, accordingly, may include audit planning documentation,
work programs, analyses, memoranda, letters of confirmation and representation, abstracts of
company documents, and schedules or commentaries prepared or obtained by the
independent certified public accountant in the course of the accountant's audit of the financial
statements of an insurer and which support the accountant's opinion thereof.
2. Every insurer required to file an audited financial report under this chapter, shall require the
accountant to make available for review by insurance department examiners, all workpapers
prepared in the conduct of the accountant's audit and any communications related to the audit
between the accountant and the insurer, at the offices of the insurer, at the insurance
department, or at any other reasonable place designated by the commissioner. The insurer
shall require that the accountant retain the audit workpapers and communications until the
insurance department has filed a report on examination covering the period of the audit but no
longer than seven years from the date of the audit report.
3. In the conduct of the aforementioned periodic review by the insurance department examiners,
it must be agreed that photocopies of pertinent audit workpapers may be made and retained
by the department. Such reviews by the department examiners must be considered
investigations and all working papers and communications obtained during the course of the
investigations must be afforded the same confidentiality as other examination workpapers
generated by the department.
History: Effective October 1, 1995; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1

### § 45-03-20-12.1. Requirements for audit committees.

This section shall not apply to foreign or alien insurers licensed in this state or an insurer that is a
SOX-compliant entity or a direct or indirect wholly owned subsidiary of a SOX-compliant entity.
1. The audit committee shall be directly responsible for the appointment, compensation, and
oversight of the work of any accountant, including resolution of disagreements between
management and the accountant regarding financial reporting, for the purpose of preparing or
issuing the audited financial report or related work pursuant to this chapter. Each accountant
shall report directly to the audit committee.
2. The audit committee of an insurer or group of insurers shall be responsible for overseeing the
insurer's internal audit function and granting the person or persons performing the function
suitable authority and resources to fulfill their responsibilities if required by section
45-03-20-15.
3. Each member of the audit committee shall be a member of the board of directors of the
insurer or a member of the board of directors of an entity elected pursuant to subsection 6 of
this section and subsection 3 of section 45-03-20-02.
4. In order to be considered independent for purposes of this section, a member of the audit
committee may not, other than in the member’s capacity as a member of the audit committee,
the board of directors, or any other board committee, accept any consulting, advisory, or other
compensatory fee from the entity or be an affiliated person of the entity or any subsidiary
thereof. However, if law requires board participation by otherwise nonindependent members,
that law shall prevail and such members may participate in the audit committee and be
designated as independent for audit committee purposes, unless they are an officer or
employee of the insurer or one of its affiliates.
5. If a member of the audit committee ceases to be independent for reasons outside the
member's reasonable control, that person, with notice by the responsible entity to the state,
may remain an audit committee member of the responsible entity until the earlier of the next
annual meeting of the responsible entity or one year from the occurrence of the event that
caused the member to be no longer independent.
6. To exercise the election of the controlling person to designate the audit committee for
purposes of this chapter, the ultimate controlling person shall provide written notice to the
commissioners of the affected insurers. Notification shall be made timely prior to the issuance
of the statutory audit report and include a description of the basis for the election. The election
can be changed through notice to the commissioner by the insurer, which shall include a
description of the basis for the change. The election shall remain in effect for perpetuity, until
rescinded.
7. a. The audit committee shall require the accountant that performs for an insurer any audit
required by this chapter to timely report to the audit committee in accordance with the
requirements of statements on auditing standards no. 61, communication with audit
committees, or its replacement, including:
(1) All significant accounting policies and material permitted practices;
(2) All material alternative treatments of financial information within statutory accounting
principles that have been discussed with management officials of the insurer,
ramifications of the use of the alternative disclosures and treatments, and the
treatment preferred by the accountant; and

(3) Other material written communications between the accountant and the
management of the insurer, such as any management letter or schedule of
unadjusted differences.
b. If an insurer is a member of an insurance holding company system, the reports required
by subdivision a may be provided to the audit committee on an aggregate basis for
insurers in the holding company system, provided that any substantial differences among
insurers in the system are identified to the audit committee.
8. The proportion of independent audit committee members shall meet or exceed the following
criteria:
Prior Calendar Year Direct Written and Assumed Premiums
$0-$300,000,000 Over $300,000,000- Over $500,000,000
$500,000,000
No minimum requirements. Majority (50% or more) of Supermajority of members
See also notes A and B. members shall be independent. (75% or more) shall be
See also notes A and B. independent. See also note A.
Note A: The commissioner has authority afforded by state law to require the entity’s board to
enact improvements to the independence of the audit committee membership if the insurer is
in a risk-based capital action level event, meets one or more of the standards of an insurer
deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled
insurer.
Note B: All insurers with less than $500,000,000 in prior year direct written and assumed
premiums are encouraged to structure their audit committees with at least a supermajority of
independent audit committee members.
Note C: Prior calendar year direct written and assumed premiums shall be the combined total
of direct premiums and assumed premiums from nonaffiliates for the reporting entities.
9. An insurer with direct written and assumed premium, excluding premiums reinsured with the
federal crop insurance corporation and federal flood program, less than five hundred million
dollars may make application to the commissioner for a waiver from this section requirements
based upon hardship. The insurer shall file, with its annual statement filing, the approval for
relief from this section with the states that it is licensed in or doing business in and the national
association of insurance commissioners. If the nondomestic state accepts electronic filing with
the national association of insurance commissioners, the insurer shall file the approval in an
electronic format acceptable to the national association of insurance commissioners.
History: Effective April 1, 2010; amended effective April 1, 2017.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-12.2. Conduct of insurer in connection with the preparation of required reports and

documents.
1. No director or officer of an insurer shall, directly or indirectly:
a. Make or cause to be made a materially false or misleading statement to an accountant in
connection with any audit, review, or communication required under this chapter; or
b. Omit to state, or cause another person to omit to state, any material fact necessary in
order to make statements made, in light of the circumstances under which the

statements were made, not misleading to an accountant in connection with any audit,
review, or communication required under this chapter.
2. No officer or director of an insurer, or any other person acting under the direction thereof, shall
directly or indirectly take any action to coerce, manipulate, mislead, or fraudulently influence
any accountant engaged in the performance of an audit pursuant to this chapter if that person
knew or should have known that the action, if successful, could result in rendering the
insurer’s financial statements materially misleading.
3. For purposes of subsection 2, actions that if successful, could result in rendering the insurer’s
financial statements materially misleading include actions taken at any time with respect to the
professional engagement period to coerce, manipulate, mislead, or fraudulently influence an
accountant:
a. To issue or reissue a report on an insurer’s financial statements that is not warranted in
the circumstances, due to material violations of statutory accounting principles prescribed
by the commissioner, generally accepted auditing standards, or other professional or
regulatory standards;
b. Not to perform audit, review, or other procedures required by generally accepted auditing
standards or other professional standards;
c. Not to withdraw an issued report; or
d. Not to communicate matters to an insurer’s audit committee.
History: Effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-12.3. Management’s report of internal control over financial reporting.

1. Every insurer required to file an audited financial report pursuant to this chapter that has
annual direct written and assumed premiums, excluding premiums reinsured with the federal
crop insurance corporation and federal flood program, of five hundred million dollars or more
shall prepare a report of the insurer’s or group of insurers’ internal control over financial
reporting, as these terms are defined in section 45-03-20-02. The report shall be filed with the
commissioner along with the communication of internal control-related matters noted in an
audit described under section 45-03-20-10. Management’s report of internal control over
financial reporting shall be as of December thirty-first immediately preceding.
2. Notwithstanding the premium threshold in subsection 1, the commissioner may require an
insurer to file management’s report of internal control over financial reporting if the insurer is in
any risk-based capital level event, or meets any one or more of the standards of an insurer
deemed to be in hazardous financial condition as defined in chapter 45-03-13.
3. An insurer or a group of insurers that is:
a. Directly subject to section 404;
b. Part of a holding company system whose parent is directly subject to section 404;
c. Not directly subject to section 404 but is a SOX-compliant entity; or
d. A member of a holding company system whose parent is not directly subject to section
404 but is a SOX-compliant entity;

may file its or its parent’s section 404 report and an addendum in satisfaction of this section's
requirement provided that those internal controls of the insurer or group of insurers having a
material impact on the preparation of the insurer’s or group of insurers’ audited statutory
financial statements were included in the scope of the section 404 report. The addendum shall
be a positive statement by management that there are no material processes with respect to
the preparation of the insurer’s or group of insurers’ audited statutory financial statements
(those items included in subsections 2 through 7 of section 45-03-20-04) excluded from the
section 404 report. If there are internal controls of the insurer or group of insurers that have a
material impact on the preparation of the insurer’s or group of insurers’ audited statutory
financial statements and those internal controls were not included in the scope of the
section 404 report, the insurer or group of insurers may either file a report under this section,
or the section 404 report and a report under this section for those internal controls that have a
material impact on the preparation of the insurer’s or group of insurers’ audited statutory
financial statements not covered by the section 404 report.
4. Management’s report of internal control over financial reporting shall include:
a. A statement that management is responsible for establishing and maintaining adequate
internal control over financial reporting;
b. A statement that management has established internal control over financial reporting
and an assertion, to the best of management’s knowledge and belief, after diligent
inquiry, as to whether its internal control over financial reporting is effective to provide
reasonable assurance regarding the reliability of financial statements in accordance with
statutory accounting principles;
c. A statement that briefly describes the approach or processes by which management
evaluated the effectiveness of its internal control over financial reporting;
d. A statement that briefly describes the scope of work that is included and whether any
internal controls were excluded;
e. Disclosure of any unremediated material weaknesses in the internal control over financial
reporting identified by management as of December thirty-first immediately preceding.
Management is not permitted to conclude that the internal control over financial reporting
is effective to provide reasonable assurance regarding the reliability of financial
statements in accordance with statutory accounting principles if there is one or more
unremediated material weaknesses in its internal control over financial reporting;
f. A statement regarding the inherent limitations of internal control systems; and
g. Signatures of the chief executive officer and the chief financial officer or equivalent
position or title.
5. Management shall document and make available upon financial condition examination the
basis upon which its assertions required in subsection 4 are made. Management may base its
assertions, in part, upon its review, monitoring, and testing of internal controls undertaken in
the normal course of its activities.
a. Management shall have discretion as to the nature of the internal control framework
used, and the nature and extent of documentation, in order to make its assertion in a
cost-effective manner and, as such, may include assembly of or reference to existing
documentation.
b. Management’s report on internal control over financial reporting, required by subsection
1, and any documentation provided in support thereof during the course of a financial
condition examination, shall be kept confidential by the insurance department.

History: Effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-13. Exemptions and effective dates.

1. Upon written application of any insurer, the commissioner may grant an exemption from
compliance with any and all provisions of this chapter if the commissioner finds, upon review
of the application, that compliance with this chapter would constitute a financial or
organizational hardship upon the insurer. An exemption may be granted at any time and from
time to time for a specified period or periods. Within ten days from a denial of an insurer's
written request for an exemption from this chapter, the insurer may request in writing a hearing
on its application for an exemption. The hearing must be held in accordance with the rules and
regulations of the North Dakota insurance department pertaining to administrative hearing
procedures.
2. Domestic insurers retaining a certified public accountant on October 1, 1995, who qualify as
independent shall comply with this chapter for the year ending December 31, 1996, and each
year thereafter unless the commissioner permits otherwise.
3. Domestic insurers not retaining a certified public accountant on October 1, 1995, who qualify
as independent may meet the following schedule for compliance unless the commissioner
permits otherwise:
a. As of December 31, 1996, file with the commissioner an audited financial report.
b. For the year ending December 31, 1996, and each year thereafter, the insurers shall file
with the commissioner all reports and communications required by this chapter.
4. Foreign insurers shall comply with this chapter for the year ending December 31, 1996, and
each year thereafter, unless the commissioner permits otherwise.
5. The requirements of subsection 4 of section 45-03-20-06 shall be in effect for audits of the
year beginning January 1, 2010, and thereafter.
6. An insurer or group of insurers that is not required to have independent audit committee
members or only a majority of independent audit committee members, as opposed to a
supermajority, because the total written and assumed premium is below the threshold and
subsequently becomes subject to one of the independence requirements due to changes in
premium shall have one year following the year the threshold is exceeded, but not earlier than
January 1, 2010, to comply with the independence requirements. Likewise, an insurer that
becomes subject to one of the independence requirements as a result of a business
combination shall have one calendar year following the date of acquisition or combination to
comply with the independence requirements.
7. The requirements of section 45-03-20-01, subsection 3 of section 45-03-20-03, subsections 7
through 12 of section 45-03-20-06, and sections 45-03-20-08 and 45-03-20-12.3, except for
section 45-03-20-12.1 covered above, are effective beginning with the reporting period ending
December 31, 2010, and each year thereafter. An insurer or group of insurers that is not
required to file a report because the total written premium is below the threshold and
subsequently becomes subject to the reporting requirements shall have two years following
the year the threshold is exceeded, but not earlier than December 31, 2010, to file a report.
Likewise, an insurer acquired in a business combination shall have two calendar years
following the date of acquisition or combination to comply with the reporting requirements.

8. If an insurer that is exempt from the section 45-03-20-15 requirements no longer qualifies for
that exemption, the insurer has one year after the year the threshold is exceeded to comply
with the requirements of this article.
History: Effective October 1, 1995; amended effective April 1, 2010; April 1, 2017.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-14. Canadian and British companies.

1. In the case of Canadian and British insurers, the annual audited financial report shall be
defined as the annual statement of total business on the form filed by such companies with
their supervision authority duly audited by an independent chartered accountant.
2. For such insurers, the letter required in subsection 2 of section 45-03-20-05 shall state that
the accountant is aware of the requirements relating to the annual audited financial report filed
with the commissioner pursuant to section 45-03-20-03 and shall affirm that the opinion
expressed is in conformity with those requirements.
History: Effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
### § 45-03-20-15. Internal audit function requirements.

1. Exemption. An insurer is exempt from the requirements of this section if:
a. The insurer has annual direct written and unaffiliated premium, including international
direct and assumed premium, but excluding premiums reinsured with the federal crop
insurance corporation and federal flood program, less than five hundred million dollars;
and
b. If the insurer is a member of a group of insurers, the group has annual direct written and
unaffiliated assumed premium, including international direct and assumed premium, but
excluding premiums reinsured with the federal crop insurance corporation and federal
flood program, less than one billion dollars.
An insurer or group of insurers exempt from the requirements of this section is encouraged,
but not required, to conduct a review of the insurer business type, sources of capital, and
other risk factors to determine whether an internal audit function is warranted. The potential
benefits of an internal audit function should be assessed and compared against the estimated
costs.
2. Function. The insurer or group of insurers shall establish an internal audit function providing
independent, objective, and reasonable assurance to the audit committee and insurer
management regarding the insurer's governance, risk management, and internal controls.
This assurance shall be provided by performing general and specific audits, reviews, and tests
and by employing other techniques deemed necessary to protect assets, evaluate control
effectiveness and efficiency, and evaluate compliance with policies and regulations.
3. Independence. To ensure internal auditors remain objective, the internal audit function must
be organizationally independent. Specifically, the internal audit function may not defer ultimate
judgment on audit matters to others, and must appoint an individual to head the internal audit
function who has direct and unrestricted access to the board of directors. Organizational
independence does not preclude dual-reporting relationships.

4. Reporting. The head of the internal audit function shall report to the audit committee regularly,
but no less than annually, on the periodic audit plan, factors that may adversely impact the
internal audit function's independence or effectiveness, material findings from completed
audits, and the appropriateness of corrective actions implemented by management as a result
of audit findings.
5. Additional requirements. If an insurer is a member of an insurance holding company system or
included in a group of insurers, the insurer may satisfy the internal audit function requirements
set forth in this section at the ultimate controlling parent level, an intermediate holding
company level, or the individual legal entity level.
History: Effective April 1, 2017.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-03-07, 26.1-03-11.1
