NAIC Model Audit Rule Programs: Building Stronger Insurance Internal Controls, Risk Management, and Regulatory Readiness

Model Audit Rule Compliance Is More Than an Annual Filing Requirement

Insurance companies operate in one of the most highly regulated financial environments in the United States.

Management must maintain reliable statutory financial reporting, protect policyholder interests, support solvency oversight, manage enterprise risks, and demonstrate that internal controls operate effectively. State insurance regulators expect more than written policies and year-end certifications. They expect insurers to understand their risks, maintain supportable controls, document management’s assessment, and correct weaknesses promptly.

The NAIC Model Audit Rule, formally known as the Annual Financial Reporting Model Regulation—Model 205, establishes important requirements governing annual audited financial reports, auditor independence, Audit Committee oversight, internal audit functions, and management reporting on Internal Control over Financial Reporting.

Corporate Compliance Seminars will present NAIC Model Audit Rule Programs from Tuesday through Thursday, September 22–24, 2026. This intensive three-day, live online program provides 18 NASBA-approved CPE credits and practical guidance for developing, operating, evaluating, and improving an insurance-company Model Audit Rule compliance program.

The program connects the NAIC requirements with:

• COSO Internal Control—Integrated Framework

• COSO Enterprise Risk Management

• COBIT

• Internal Control over Financial Reporting

• Risk-focused insurance examinations

• Annual management assessments

• Triennial enterprise risk evaluations

• Regulatory reporting

• Internal and external auditing

The objective is not merely to complete a regulatory filing.

It is to build a sustainable control and risk-management program that supports reliable reporting and demonstrates regulatory readiness.

What Is the NAIC Model Audit Rule?

The NAIC Model Audit Rule is the commonly used name for the Annual Financial Reporting Model Regulation, Model 205.

The regulation provides a model that states may adopt, modify, and enforce through their own insurance laws and regulations. Because state requirements can differ, insurers must evaluate the specific provisions adopted by their domiciliary and applicable regulatory jurisdictions.

The NAIC publishes a Guide to Compliance with State Audit Requirements that summarizes state requirements based on Model 205, illustrating why insurers must understand both the model regulation and state-specific implementation.

Depending on the insurer and applicable state provisions, Model Audit Rule requirements may address:

• Annual audited financial reports

• Selection and independence of the external CPA

• Audit Committee responsibilities

• Communication of significant deficiencies

• Management reporting on Internal Control over Financial Reporting

• Internal audit function requirements

• Auditor rotation or qualification provisions

• Documentation and regulatory access

• Filing dates and exemptions

• Corrective action

A company should not assume that completing the external audit automatically satisfies every Model Audit Rule requirement.

The external audit is one element of a broader governance and regulatory structure.

Why the Model Audit Rule Matters

Insurance regulators rely on accurate financial information to evaluate:

• Solvency

• Capital adequacy

• Reserves

• Investments

• Liquidity

• Reinsurance

• Claims obligations

• Risk concentrations

• Holding-company activity

• Prospective financial condition

Weak financial-reporting controls can obscure emerging problems.

A control failure may affect:

• Statutory financial statements

• Risk-based capital calculations

• Schedule reporting

• Reserve information

• Investment classifications

• Reinsurance balances

• Related-party disclosures

• Regulatory filings

For that reason, Model Audit Rule compliance should be viewed as part of the insurer’s overall solvency and governance program—not as a narrow accounting exercise.

The NAIC’s financial-regulation structure uses risk-focused financial analysis and examinations to identify insurers or groups that may be developing financial problems and to support earlier corrective action.

Internal Control over Financial Reporting Is the Operational Core

A major focus of an effective Model Audit Rule program is Internal Control over Financial Reporting, commonly abbreviated as ICFR.

ICFR includes the policies, procedures, systems, people, and review activities that support reliable financial reporting.

Insurance-company ICFR may include controls over:

• Premium accounting

• Claims and loss reserves

• Reinsurance

• Investments

• Cash and treasury

• Commissions

• Policy administration

• General ledger activity

• Financial close

• Statutory reporting

• Tax

• Actuarial estimates

• Intercompany transactions

• Information technology

Management should be able to explain how significant financial-reporting risks are identified and which controls address those risks.

A mature ICFR program connects:

1. Financial-reporting objectives

2. Significant accounts and disclosures

3. Relevant assertions

4. Business processes

5. Risks of misstatement

6. Key controls

7. Control owners

8. Testing procedures

9. Deficiencies

10. Corrective actions

The September 22–24 program teaches participants how to create a risk-based ICFR assessment, design controls, monitor their effectiveness, conduct annual evaluations, communicate results, and address identified deficiencies.

COSO Provides the Internal-Control Foundation

The CCS program uses the COSO 2013 Internal Control—Integrated Framework as a central organizing structure.

COSO contains five integrated components:

Control Environment

The control environment establishes the organization’s foundation.

It includes:

• Integrity and ethical values

• Governance oversight

• Organizational structure

• Accountability

• Competence

• Management philosophy

• Assignment of authority

An insurer may have detailed process controls while still experiencing significant risk if leadership tolerates override, weak documentation, or delayed corrective action.

Risk Assessment

Management identifies and evaluates risks that could prevent the organization from achieving its objectives.

For financial reporting, this may include:

• Complex estimates

• New products

• Acquisitions

• System conversions

• Reinsurance arrangements

• Investment valuations

• Regulatory changes

• Fraud

• Cybersecurity incidents

• Vendor dependencies

Control Activities

Control activities are the actions used to mitigate identified risks.

Examples include:

• Approvals

• Reconciliations

• Access restrictions

• System validations

• Independent reviews

• Segregation of duties

• Management review controls

• Exception reporting

Information and Communication

Reliable information must reach the people responsible for preparing, reviewing, and governing financial reporting.

Weak data quality, unclear escalation, or incomplete communication can cause an otherwise well-designed control to fail.

Monitoring Activities

Management should determine whether controls remain effective over time.

Monitoring may include:

• Control self-assessments

• Internal audit testing

• Compliance reviews

• Management certifications

• Exception dashboards

• Remediation tracking

• External audit observations

The course addresses how COSO’s components and 17 principles can be used to identify financial-reporting risks, establish policies and procedures, evaluate control effectiveness, and support regulatory expectations.

Entity-Level Controls Influence the Entire Program

Entity-Level Controls, or ELCs, operate across the organization rather than within one transaction process.

Examples include:

• Board oversight

• Audit Committee effectiveness

• Code of conduct

• Management certification

• Risk assessment

• Fraud-risk management

• Internal Audit independence

• Financial-reporting competence

• Whistleblower procedures

• Deficiency escalation

• Remediation monitoring

Weak ELCs can undermine multiple process controls simultaneously.

For example, a reconciliation control may be properly designed but ineffective when:

• Managers do not review exceptions.

• Employees lack appropriate training.

• Deadlines are routinely ignored.

• Deficiencies are not escalated.

• Senior management overrides established procedures.

The CCS event specifically examines which ELCs should be included in a Model Audit Rule program and how they support ICFR governance.

A Risk-Based Approach Is More Effective Than a Control Inventory

Some compliance programs begin by listing every control in the organization.

That approach often creates large inventories containing many low-value activities while failing to focus on significant financial-reporting risks.

A stronger approach begins with risk.

Management should determine:

• Which financial accounts and disclosures are significant?

• Which assertions could be misstated?

• Which processes generate the information?

• Where could a material error or fraud occur?

• Which controls prevent or detect the problem?

• Which controls are sufficiently precise?

• What evidence demonstrates operation?

• What happens when the control fails?

The resulting control population should reflect the risks that matter most.

The CCS program teaches a risk-based approach that aligns internal controls with regulatory expectations and annual ICFR evaluation requirements.

Insurance Accounting Creates Specialized Control Risks

Insurance companies face risks that differ substantially from those in ordinary commercial organizations.

Examples include:

Claims and Loss Reserves

Reserves frequently involve significant judgment, actuarial assumptions, historical data, and model outputs.

Controls may address:

• Data completeness

• Actuarial methods

• Assumption approval

• Management review

• Reconciliation

• Change analysis

• Independent validation

Reinsurance

Reinsurance accounting may involve:

• Contract interpretation

• Recoverability

• Counterparty risk

• Collateral

• Ceded premiums

• Recoverables

• Commissions

• Disputes

Investments

Insurers often maintain large and complex investment portfolios.

Controls may address:

• Classification

• Valuation

• Impairment

• Custody

• Authorization

• Income recognition

• Concentration

• Regulatory limits

Premium and Policy Administration

Risks include:

• Incomplete premium recording

• Incorrect rates

• Policy-system interfaces

• Cancellations

• Unearned premium calculations

• Producer commissions

• Billing adjustments

Information Technology

Insurance financial reporting frequently depends on numerous policy, claims, actuarial, investment, and general-ledger systems.

IT risks may affect:

• Access

• Interfaces

• System changes

• Data conversion

• Batch processing

• Automated calculations

• Report completeness

• Cybersecurity

The NAIC continues to maintain specialized IT-examination guidance and monitor cybersecurity trends within its financial-examination framework.

COBIT Strengthens Information Technology Governance

COSO provides the broad internal-control framework.

COBIT can help organizations evaluate information technology governance and controls supporting financial reporting.

Relevant IT areas may include:

• Governance

• Access management

• Change management

• Computer operations

• Cybersecurity

• Data management

• Vendor management

• Business continuity

• System development

• Incident management

• Performance monitoring

The Model Audit Rule course explores how COBIT can complement COSO and strengthen the technology component of an insurance-company compliance program.

This is especially important because automated controls and system-generated reports are only reliable when the underlying IT environment is adequately controlled.

Annual ICFR Assessment Requires Evidence

Management should not conclude that controls are effective merely because policies exist or no known error has occurred.

A supportable annual assessment should consider:

• Control design

• Implementation

• Operating effectiveness

• Testing evidence

• Identified deviations

• Deficiencies

• Compensating controls

• Remediation

• Management review

• Disclosure and reporting

Testing may include:

• Inquiry

• Observation

• Inspection

• Reperformance

• Data analytics

• Walkthroughs

• Sample testing

The scope and nature of testing should reflect:

• Risk

• Control frequency

• Control complexity

• Degree of judgment

• Prior results

• Organizational change

• Planned reliance

• Regulatory expectations

The course provides practical guidance for planning, conducting, and reporting internal-control assessments under a Model Audit Rule program.

Management Review Controls Require Special Attention

Insurance financial reporting often depends heavily on management review controls.

Examples include review of:

• Reserve analyses

• Investment valuations

• Financial statements

• Regulatory schedules

• Reinsurance balances

• Variance reports

• Account reconciliations

• Capital calculations

• Actuarial reports

A signature or electronic approval does not automatically establish that the review was effective.

Auditors and compliance professionals should understand:

• What information was reviewed?

• What level of precision was expected?

• What threshold triggered investigation?

• What evidence demonstrates the review?

• How were exceptions resolved?

• Was the reviewer competent?

• Was the review timely?

A review control must be capable of detecting the risk it is intended to address.

Deficiencies Must Be Evaluated, Not Merely Counted

When testing identifies a control failure, management should determine:

• What happened?

• Why did it happen?

• How long did it exist?

• What transactions were affected?

• Could a financial misstatement have occurred?

• Did another control compensate?

• Does the failure indicate a broader problem?

• Is the cause related to design or operation?

• What corrective action is required?

• Who must be informed?

A program that simply counts control exceptions may miss their significance.

One isolated exception involving a critical estimate or management override may be more serious than several routine documentation failures.

The event addresses corrective action, follow-up, and communication of identified compliance gaps to management and the Board.

Root-Cause Analysis Improves Remediation

Weak corrective actions often address the visible symptom rather than the reason the control failed.

Example: Condition: A reconciliation was not completed.

Weak corrective action: Complete the reconciliation.

That response fixes one overdue item.

It may not address:

• Staffing shortages

• Unclear ownership

• System limitations

• Inadequate training

• Competing deadlines

• Poor supervision

• Missing escalation procedures

A stronger remediation process determines why the control failed and whether the cause affects other areas.

Root-cause categories may include:

• People

• Process

• Technology

• Governance

• Data

• Training

• Resources

• Communication

• Management oversight

Corrective action should address the root cause and reduce the likelihood of recurrence.

Internal Audit Has an Important but Distinct Role

Internal Audit may assist the organization by:

• Evaluating governance

• Reviewing risk assessments

• Testing controls

• Assessing management’s methodology

• Reviewing deficiency evaluation

• Monitoring corrective action

• Reporting to the Audit Committee

• Evaluating regulatory readiness

However, Internal Audit should not assume management’s responsibility for designing, operating, or certifying ICFR.

Management owns the controls.

Internal Audit provides independent assurance.

This distinction protects objectivity and supports an effective Three Lines structure.

The NAIC accreditation framework has included internal audit function requirements as a significant regulatory element, reinforcing the importance of an appropriately positioned internal audit function within insurers.

External Auditors Do Not Own the MAR Program

External auditors provide assurance over financial statements and perform work required under applicable professional and regulatory standards.

They do not own management’s Model Audit Rule compliance program.

Management remains responsible for:

• Establishing the control system

• Identifying risks

• Operating controls

• Evaluating deficiencies

• Preparing required reports

• Maintaining evidence

• Correcting weaknesses

Overreliance on the external audit firm can create independence concerns and leave management without sufficient internal knowledge.

The Model Audit Rule program should be sustainable even when the external audit firm changes.

Audit Committee Oversight Strengthens Accountability

The Audit Committee should understand:

• Which Model Audit Rule requirements apply

• Management’s ICFR assessment approach

• Significant risks

• Identified deficiencies

• External auditor communications

• Internal Audit results

• Overdue remediation

• Resource limitations

• Regulatory developments

The committee should not merely receive the final management report.

It should oversee whether the underlying compliance process is credible and adequately resourced.

Useful Audit Committee questions include:

• What significant changes occurred during the year?

• Which controls rely heavily on management judgment?

• What deficiencies were identified?

• Are any repeat issues unresolved?

• Were all significant systems included?

• What areas received limited testing?

• How was fraud risk considered?

• What work did Internal Audit perform?

• What concerns did the external auditor communicate?

• Are corrective actions timely?

The Financial Condition Examiners Handbook Matters

Insurance regulators use the Financial Condition Examiners Handbook to guide state financial examinations.

The NAIC describes the handbook as guidance covering the entire examination process and specific instructions for individual phases of the examination. It is updated annually.

The Examination Oversight Task Force maintains tools supporting risk-focused solvency surveillance and promotes communication among examiners, analysts, and regulators.

This matters to insurers because a sound Model Audit Rule program should align with how regulators evaluate:

• Business processes

• Significant risks

• Internal controls

• Corporate governance

• IT general controls

• Prospective solvency

• Corrective action

The CCS event incorporates guidance from the Financial Condition Examiners Handbook so participants can understand not only what management must do, but also how regulators may evaluate the program.

Triennial Enterprise Risk Assessment Expands the View

A strong Model Audit Rule program should not focus only on historical financial reporting.

Insurance regulators increasingly use risk-focused methods that consider prospective risks and the insurer’s future financial condition.

Enterprise risks may include:

• Underwriting

• Reserving

• Pricing

• Credit

• Market

• Liquidity

• Reinsurance

• Operational risk

• Cybersecurity

• Strategic risk

• Regulatory change

• Catastrophe exposure

• Third-party dependency

The CCS course addresses triennial enterprise-risk evaluation and how COSO ERM can help organizations identify, assess, respond to, and monitor risks beyond transaction-level ICFR.

COSO ERM Connects Risk to Strategy

COSO Enterprise Risk Management helps organizations consider risk in relation to:

• Governance and culture

• Strategy and objective setting

• Performance

• Review and revision

• Information, communication, and reporting

This broader perspective helps insurers evaluate whether:

• Risk is considered during strategic decisions.

• Risk appetite is defined.

• Significant risks have owners.

• Risk responses are monitored.

• Emerging risks are escalated.

• Board reporting is meaningful.

A Model Audit Rule program becomes more valuable when it supports enterprise decision-making rather than functioning only as a year-end compliance exercise.

Continuous Monitoring Reduces Year-End Surprises

Organizations that wait until year-end to evaluate controls frequently discover problems too late.

Continuous monitoring may include:

• Monthly control certifications

• Exception reports

• Reconciliation status

• Access-review completion

• Overdue remediation

• Management review documentation

• Financial-close metrics

• Data-quality indicators

• Repeat deviations

• System-change monitoring

This allows management to identify deteriorating controls before the annual assessment.

The course emphasizes ongoing monitoring and continual improvement rather than static annual compliance.

Artificial Intelligence Can Support MAR Compliance

AI can assist insurance compliance and audit teams with:

• Summarizing policies

• Comparing controls with COSO principles

• Preparing risk-control matrices

• Drafting test procedures

• Organizing deficiency information

• Reviewing documentation for consistency

• Creating executive summaries

• Identifying recurring themes

• Preparing Audit Committee materials

AI may improve efficiency, but it introduces its own risks.

Professionals should verify:

• Accuracy

• Completeness

• Confidentiality

• Data security

• Source support

• Regulatory applicability

• Human review

AI-generated analysis does not replace management judgment, auditor skepticism, or documented evidence.

Common Model Audit Rule Program Weaknesses

Treating MAR as an Annual Project

Controls should operate throughout the year.

Relying on Outdated Documentation

Process descriptions, risks, and control matrices should reflect current systems and responsibilities.

Excessive Control Inventories

Large control lists may distract attention from the controls that address significant risks.

Incomplete IT Scope

Financial-reporting controls may rely on systems and reports that have not been adequately evaluated.

Weak Management Review Evidence

A signature may not demonstrate the depth or precision of review.

Poor Deficiency Evaluation

Exceptions are corrected individually without evaluating broader financial-reporting risk.

Delayed Remediation

Repeat findings suggest weak accountability.

Overreliance on External Auditors

Management loses ownership and may create independence concerns.

Inadequate Regulatory Awareness

State-specific requirements and recent revisions may be missed.

Limited Board Reporting

The Audit Committee receives conclusions without enough information to oversee the process.

Questions Insurance Executives Should Ask

• Which state Model Audit Rule requirements apply to us?

• Is our ICFR scope current?

• Have significant systems and reports been included?

• Are risks linked to specific controls?

• Who owns each key control?

• What evidence demonstrates operation?

• How are management review controls tested?

• Which deficiencies remain unresolved?

• Are repeat issues increasing?

• Does Internal Audit provide independent assurance?

• Are regulatory developments monitored?

• Is the Audit Committee receiving meaningful reporting?

• Can the program withstand a risk-focused examination?

• Are we using compliance work to improve the business?

These questions help management evaluate whether the program is operationally effective—not merely documented.

What Participants Will Learn

The NAIC Model Audit Rule Programs event provides a structured examination of Model Audit Rule compliance and implementation.

Participants will learn how to:

• Understand the purpose, scope, and key elements of Model 205.

• Identify organizations and requirements falling under MAR provisions.

• Define Internal Control over Financial Reporting.

• Apply COSO’s five components and 17 principles.

• Use COSO ERM for broader risk management.

• Apply COBIT to information technology governance.

• Develop a risk-based ICFR assessment.

• Identify and mitigate common financial-reporting risks.

• Evaluate Entity-Level Controls.

• Conduct annual control assessments.

• Understand triennial enterprise-risk evaluations.

• Align the program with the Financial Condition Examiners Handbook.

• Communicate results to management and the Board.

• Address deficiencies through corrective action.

• Improve compliance efficiency and regulatory readiness.

Who Should Attend?

This program is designed for insurance-industry professionals responsible for governance, reporting, risk, internal control, and regulatory compliance, including:

• Chief Financial Officers

• Controllers

• Chief Audit Executives

• Internal auditors

• External auditors

• Compliance officers

• Risk managers

• Accounting managers

• Financial-reporting professionals

• IT auditors

• Insurance executives

• Audit Committee support professionals

• Model Audit Rule program managers

The event is suitable for professionals developing a new program as well as those seeking to improve an established compliance framework.

Three Days of Focused MAR Training

Day One: MAR and Internal-Control Foundations

Participants examine:

• The purpose and structure of the Model Audit Rule

• Regulatory expectations

• ICFR

• COSO

• COBIT

• Risk-based control design

• Entity-Level Controls

Day Two: Risk Management and Compliance

The second day addresses:

• Independence

• Risk assessment

• Enterprise risk

• Triennial evaluations

• Financial Condition Examiners Handbook guidance

• Monitoring

• Compliance efficiency

Day Three: Application, Reporting, and Improvement

The final day focuses on:

• Practical case studies

• Annual and triennial filings

• Testing and evaluation

• Deficiency reporting

• Communication with stakeholders

• Corrective action

• Program improvement

The program combines instruction, case studies, discussions, and a library of reference materials intended to support implementation.

Why This Training Matters

The Model Audit Rule creates regulatory obligations.

A well-designed MAR program creates business value.

It can help an insurer:

• Strengthen financial reporting

• Reduce control failures

• Improve regulatory readiness

• Clarify accountability

• Support risk-focused examinations

• Improve Audit Committee oversight

• Identify emerging risks

• Accelerate remediation

• Reduce duplicated compliance work

• Increase stakeholder confidence

The best programs do not operate only during filing season.

They become part of the organization’s ongoing management, governance, and risk-monitoring processes.

Register for the September 22–24, 2026 Program

Corporate Compliance Seminars’ NAIC Model Audit Rule Programs event provides three days of concentrated, practical instruction on Model Audit Rule compliance, COSO, COBIT, ICFR, enterprise risk management, examination readiness, and regulatory reporting.

The program is designed to help insurance professionals move from fragmented compliance activities to an integrated control and risk-management system.

A mature Model Audit Rule program should allow management to answer four questions confidently:

1. What are our significant reporting and enterprise risks?

2. Which controls address those risks?

3. What evidence demonstrates that the controls work?

4. How do we respond when they do not?

Organizations that can answer those questions are better prepared for annual reporting, external audits, risk-focused examinations, and changing regulatory expectations.

Frequently Asked Questions

What is the NAIC Model Audit Rule?

The Model Audit Rule is the common name for the NAIC Annual Financial Reporting Model Regulation, Model 205. It addresses annual audited financial reporting and related governance, audit, independence, internal-control, and management-reporting requirements.

Does every insurer have identical MAR requirements?

No. States adopt and may modify NAIC model laws and regulations. An insurer should review the requirements of its domiciliary and other applicable jurisdictions. The NAIC publishes a guide summarizing state audit requirements based on Model 205.

What is ICFR?

Internal Control over Financial Reporting is the system of policies, procedures, controls, systems, and oversight used to support reliable financial reporting and prevent or detect material misstatements.

How does COSO relate to the Model Audit Rule?

COSO provides a recognized framework for designing, implementing, evaluating, and monitoring internal control. The CCS course uses the COSO 2013 framework to organize the MAR risk and control assessment process.

Why is COBIT included?

Insurance financial reporting depends heavily on information systems. COBIT helps organizations evaluate IT governance and controls supporting the reliability, security, and availability of financial information.

What is the role of the Financial Condition Examiners Handbook?

The handbook provides guidance to state insurance departments for conducting financial examinations, including risk-focused examination methods. It is updated annually.

How many CPE credits does the program provide?

The three-day Group Internet-Based program provides 18 CPE credits, based on a 50-minute instructional hour.