The objectives of our audit were to evaluate the effectiveness of the Office of Insurance Regulation (OIR) policies and procedures established for the purpose of monitoring the solvency of domestic insurance companies and to measure the extent to which the OIR had complied with applicable laws. Our audit, covering the period January 7, 2003, through February 29, 2004, and selected actions through June 4, 2004, disclosed the following:

Finding No. 1: The design of the OIR’s financial analysis review methodologies was generally sufficient for the accomplishment of the OIR’s review objectives. However, review file documentation could be substantially improved. Review files did not include a numbering (referencing) system, and some review files’ summary notes and conclusions contained reference to unresolved issues. Well-organized and cross-referenced review file documentation can be used to enhance an organization’s ability to complete supervisory reviews, conduct training, and provide a mechanism for the performance of adequate follow-up procedures.

Finding No. 2: The design of the financial condition examination processes was sufficient for the accomplishment of OIR examination objectives. However, opportunities exist for enhancing the examination process. Examination working paper files did not include documentation of supervisory involvement in the determination of examination scope, and final draft reports did not contain references to supporting documentation.

Finding No. 3: Examination expenses due from domestic insurance companies and totaling $4.9 million were shown as uncollected in accounts receivable subsidiary records. The OIR indicated that a review and analysis of the receivable balances would be conducted.

Finding No. 4: Independent actuarial reviews of loss reserve estimates of domestic insurance companies were not always obtained. Because of the importance of the loss reserve estimates to setting rates and measuring insurer solvency, we believe that the OIR, when such independent estimates are not provided by the insurer, should obtain periodic independent actuarial certifications.

Finding No. 5: Annual reports required by Section 624.315(1), Florida Statutes, had not been completed for calendar years 2002 and 2003 as of June 4, 2004. The preparation and submission of these reports on a more current basis will make them more useful to legislative leadership and the Executive Office of the Governor.

The Commissioner's response to the findings and recommendations contained in this report can be viewed on the Auditor General's Web site.