Insurance Guidance Note #6: Role of the Approved Auditor (March 2005)

Summary

This is Bermuda Monetary Authority Insurance Guidance Note #6 (March 2005), explaining the Authority's expectations regarding the role, appointment, conduct and reporting duties of the Approved Auditor for registered insurers under the Insurance Act 1978 (as amended) and related regulations. It is interpretive guidance rather than binding law, but sets minimum standards insurers and Approved Auditors are expected to meet.

• Appointment: Every registered insurer must appoint an independent, Bermuda based auditor to report annually on its statutory financial statements, and must obtain the Authority's approval of that person as the Approved Auditor.
• Notification of candidate: Prior to registration, the insurer must notify the Authority in writing of its proposed Approved Auditor, typically via pre incorporation documentation and a letter of acceptance.
• Changes and vacancies: Insurers must notify the Authority in writing within 14 days of any change to previously submitted auditor particulars, and must obtain Authority approval for any new Approved Auditor.
• Removal or resignation: An insurer proposing to remove or replace an auditor before expiry of term must notify the Authority forthwith; an Approved Auditor who resigns, expects to cease acting, or will not seek reappointment must forthwith notify the Authority.
• Letter of undertaking: A newly appointed Approved Auditor must provide the Authority a letter undertaking to perform functions in accordance with the Act and Institute of Chartered Accountants of Bermuda standards.
• Disqualification: The Authority may require removal of an Approved Auditor found not fit and proper (e.g. lacking independence, inadequate performance, failing eligibility criteria), after first notifying the auditor and insurer of its intention.
• Audited statements and returns: Insurers must prepare annual statutory financial statements audited by the Approved Auditor, retain statements, notes and the auditor's report at the principal office for five years, and prepare and submit annual statutory financial returns to the Authority.
• Auditor's report and opinions: The Approved Auditor must file a prescribed form report with the annual statutory return, confirming GAAS compliance and expressing opinions on compliance with the Act, the Solvency Certificate, and Declaration of Statutory Ratios, qualifying the report where specified deficiencies or concerns arise.
• Access and cooperation: Insurers must give the Approved Auditor access to accounting records and relevant personnel (including at material outsourced service providers), and the Authority expects auditors to cooperate by giving it access to working papers for inspection purposes.

The Authority expects immediate compliance with matters arising from the Insurance Amendment Act 2004, and encourages compliance with other guidance matters as soon as possible and in any event by 31 December 2005, unless a later date is agreed with the Authority.

Key obligations

• Every registered insurer must appoint an independent, Bermuda based auditor and obtain the Authority's approval of that person as Approved Auditor (IA 16(1), 16(2)).
• The insurer must notify the Authority in writing of its proposed Approved Auditor prior to registration.
• The insurer must notify the Authority in writing within 14 days of any change to the particulars previously submitted about the Approved Auditor, and obtain approval for any replacement auditor (IA 8(3)).
• The insurer must give the Authority written notice forthwith if it proposes to remove or replace its Approved Auditor before expiry of term (IA 16(8)).
• An Approved Auditor who resigns, becomes aware it will cease to act, or does not intend to seek reappointment must give the Authority written notice forthwith (IA 16A(1)).
• A newly appointed Approved Auditor must provide the Authority a letter of undertaking to perform its functions per the Act and ICAB standards.
• Insurers must prepare annual statutory financial statements audited by the Approved Auditor in accordance with the Act (IA 15(1), 15(4)).
• Insurers must keep copies of statutory financial statements, notes and the auditor's report at the principal office for five years from the filing date (IA 17(2)).
• Insurers must prepare and submit annual statutory financial returns to the Authority (IA 18).
• The Approved Auditor must prepare and sign a report addressed to the Authority for inclusion in the annual statutory financial return, confirming GAAS compliance and expressing required opinions (IRASR 5, 7(1)).
• The Approved Auditor must qualify the report and notify the Authority forthwith where a material modification, qualification, denial or adverse opinion is included, and must furnish a copy of the report as soon as practicable (IA 16A(1)(d), 16A(2)).
• Insurers must ensure the Approved Auditor has access to accounting records, relevant personnel, and equivalent access at material outsourcing suppliers.
• Insurers and Approved Auditors must come into compliance with matters arising from the Insurance Amendment Act 2004 immediately, and with other guidance matters by 31 December 2005 or a later date agreed with the Authority.

Applies to

insurers registered under the Insurance Act 1978, Approved Auditors approved by the Bermuda Monetary Authority

Deadlines

• within fourteen days: Insurer must notify the Authority in writing of changes to Approved Auditor particulars, or the Authority may itself appoint an auditor if a vacancy is not filled.
• forthwith: Insurer must notify the Authority if it proposes to remove or replace the Approved Auditor before expiry of term; Approved Auditor must notify the Authority on resignation, cessation, or non-reappointment; auditor must notify the Authority of a material qualification or adverse opinion.
• fifteen days after request: Under the Companies Act 1981, a replacing auditor may accept appointment if no written statement of reasons is received from the outgoing auditor within this period.
• five years from the filing date: Insurer must retain copies of statutory financial statements, notes and the auditor's report at its principal office.
• 31 December 2005: General deadline (absent Authority agreement to a later date) for insurers and Approved Auditors to come into compliance with matters covered by this guidance, other than those arising from the Insurance Amendment Act 2004 which require immediate compliance.