Independent Auditor s Report

Transcription

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2 Independent Auditor s Report To the Members of the Board of Directors National Insurance Producer Registry Kansas City, Missouri Report on the Financial Statements We have audited the accompanying financial statements of the National Insurance Producer Registry (the NIPR), which comprise the statements of financial position as of December 31, 2014 and 2013, and the related statement of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the NIPR as of December 31, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Kansas City, Missouri February 27,

3 Statements of Financial Position December 31, 2014 and 2013 Assets Current Assets: Cash and cash equivalents $ 16,385,768 $ 13,755,615 Accounts receivable, less allowance for doubtful accounts; 2014 $14,723 and 2013 $26,120 2,260,225 2,105,887 Interest receivable 23,114 20,860 Prepaid expenses 78,168 57,574 Investments (Note 2) 19,897,076 19,094,073 Total current assets 38,644,351 35,034,009 Property and equipment, net (Note 3) 15,024 3,725 Total assets $ 38,659,375 $ 35,037,734 Liabilities and Net Assets Current Liabilities: Accounts payable $ 2,316,770 $ 2,040,123 Accrued expenses 650, ,598 Total current liabilities 2,966,871 2,625,721 Net Assets: Unrestricted 35,692,504 32,412,013 Total liabilities and net assets $ 38,659,375 $ 35,037,734 See. 2

4 Statements of Activities Years Ended December 31, 2014 and 2013 Revenues: Access and transaction fees $ 26,889,417 $ 24,330,231 Other income 34,113 36,417 Total revenues 26,923,530 24,366,648 Expenses: Administrative services and license fees 11,616,770 10,559,482 Salaries 5,411,778 5,016,267 Employee benefits 1,480,333 1,456,933 Professional services 5,245,478 4,622,467 Travel 479, ,438 Rental and maintenance 129,026 99,167 Depreciation 7,356 9,343 Insurance 87,806 82,600 Office services 90,124 76,386 Bad debt expense 32,776 53,591 Other expenses 121,994 38,751 Total expenses 24,702,933 22,490,425 Changes in net assets before investment income 2,220,597 1,876,223 Investment income (Note 2) 1,059,894 2,396,697 Changes in net assets 3,280,491 4,272,920 Net assets, beginning of year 32,412,013 28,139,093 Net assets, end of year $ 35,692,504 $ 32,412,013 See. 3

5 Statements of Cash Flows Years Ended December 31, 2014 and 2013 Cash Flows from Operating Activities: Changes in net assets $ 3,280,491 $ 4,272,920 Adjustments to reconcile changes in net assets to net cash flows from operating activities: Depreciation 7,356 9,343 Net realized and unrealized gain on investments (545,245) (1,879,494) Changes in operating assets and liabilities: Accounts receivable (154,338) 103,858 Interest receivable (2,254) 11,171 Prepaid expenses (20,594) 9,043 Deferred revenues - (9,133) Accounts payable 276,647 2,026 Accrued expenses 64,503 (66,024) Net cash provided by operating activities 2,906,566 2,453,710 Cash Flows from Investing Activities: Purchase of investments (6,308,337) (5,967,738) Proceeds from disposition of investments 6,050,579 4,126,788 Purchases of property and equipment (18,655) - Net cash (used in) investing activities (276,413) (1,840,950) Net increase in cash and cash equivalents 2,630, ,760 Cash and Cash Equivalents: Beginning 13,755,615 13,142,855 Ending $ 16,385,768 $ 13,755,615 See. 4

6 Note 1. Summary of Significant Accounting Policies Nature of operations: The National Insurance Producer Registry (the NIPR) is a non-profit affiliate of the National Association of Insurance Commissioners (the NAIC). The NIPR combines the strengths of the public and private sectors to create products and services that benefit insurance regulators, industry and consumers. Basis of accounting for revenues: The NIPR earns revenues predominantly through access fees and transaction fees. Access fees are earned when users access the NIPR's Producer Database (PDB). The PDB is an electronic database consisting of information relating to insurance agents and brokers. The PDB links participating state regulatory licensing systems into one common repository of producer information. Transaction fees are earned when users process transactions through the NIPR Gateway. The NIPR Gateway facilitates the electronic exchange of producer information, including license applications, appointments and terminations. The NIPR earns revenue by charging a fee for providing the interface between industry and state regulators for licensing and other transactions. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents: The NIPR considers all liquid investments with original maturities of one year or less to be cash equivalents. At December 31, 2014 and 2013, cash equivalents consisted primarily of money market funds. Accounts receivable: Accounts receivable are stated at the amounts billed to customers. The NIPR provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Past-due accounts are periodically reviewed by management. Delinquent and/or uncollectible receivables are written off based on individual credit evaluation and specific circumstances of the customer. Investments: NIPR carries its investments in marketable securities with readily determinable fair values, and all investments in debt securities, at their fair values determined by reference to public exchanges. NIPR reports the fair value of alternative investments using the practical expedient. Unrealized gains and losses are included in the change in net assets in the accompanying financial statements. Investments may be exposed to various risks, such as interest rate, market and credit risks. As a result, it is at least reasonably possible that changes in risks in the near term could affect investment balances, and those effects could be significant. Fair value of financial instruments: The following methods and assumptions were used to estimate the fair value of each class of the NIPR's financial instruments at December 31, 2014 and 2013: Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of these instruments. Investment securities, except alternative investments: The fair values of fixed income, and domestic and international equity investments are based on quoted market prices at the reporting date for those or similar investments. A portion of the fixed income investments are valued based on quoted prices for similar instruments in active markets. 5

7 Note 1. Summary of Significant Accounting Policies (Continued) Alternative investments: NIPR reports the fair value of market alternative investments using the practical expedient. The practical expedient allows for the use of net asset value (NAV), either as reported by the investee fund or as adjusted by NIPR based on various factors. Fair value measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in its principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. NIPR accounts for its investments at fair value. In accordance with the guidance, NIPR has categorized its investments, based on the priority of the inputs to the valuation technique which gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Quoted prices for identical instruments traded in active markets. Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; or derived from inputs that are observable. Level 3: Primarily all Level 3 investments are valued using the practical expedient and include those investments that cannot be redeemed at NAV at or near the reporting date, or for which redemption at NAV is uncertain due to lock-up periods or other investment restrictions. Investments and concentrations of credit risk: Financial instruments that potentially subject NIPR to significant concentrations of credit risk consist principally of cash and investments. NIPR maintains deposits in financial institutions in excess of federally insured limits. Management monitors the soundness of these financial institutions and believes NIPR's risk is negligible. Alternative investments are redeemable with the fund at net asset value under the original terms of the partnership and/or subscription agreements. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future, in accordance with the fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the net asset value of the funds and, consequently, the fair value of the NIPR's interests in the funds. Although a secondary market exists for these investments, it is not active and individual transactions are typically not observable. When transactions do occur in this limited secondary market, they may occur at discounts to the reported net asset value. It is, therefore, reasonably possible that, if NIPR were to sell these investments in the secondary market, a buyer may require a discount to the reported net asset value, and the discount could be significant. Property and equipment: Property and equipment are stated at cost. Routine repairs and maintenance are expensed as incurred. Depreciation is computed by the straight-line method over the estimated useful life of the related assets. Furniture and equipment Computer software Computer hardware 5 Years 3 Years 3 Years 6

8 Note 1. Summary of Significant Accounting Policies (Continued) Taxes: The NIPR has been granted exemption from income taxes by the Internal Revenue Service under the provisions of Section 501(c)(6) of the Internal Revenue Code and a similar provision of state law. However, the NIPR is subject to federal income tax on any unrelated business taxable income. Uncertain tax positions, if any, are recorded in accordance with FASB ASC 740, Income Taxes. FASB ASC 740 requires the recognition of a liability for tax positions taken that do not meet the more-likelythan-not standard that the position will be sustained upon examination by the taxing authorities. There is no liability for uncertain tax positions recorded at December 31, 2014 or Forms 990 filed by NIPR are subject to examination by the Internal Revenue Service (IRS) up to three years from the extended due date of each return. Forms 990 filed by NIPR are no longer subject to examination for the years 2010 and prior. Functional expenses: The Not-for-Profit Entities topic of the FASB ASC requires not-for-profit organizations to disclose expenses by functional classification. The NIPR presents expenses only by their natural classification on the December 31, 2014 and 2013 statements of activities. Management believes that disclosing expenses by function is insignificant to the financial statements taken as a whole, and therefore does not apply the provision of the topic as it relates to the disclosure of expenses by functional classification. 7

9 Note 2. Investments and Investment Income Investments carried at fair value at December 31, 2014 and 2013 consisted of the following: Cost Fair Value Cost Fair Value Government bonds $ 708,430 $ 709,942 $ 688,566 $ 717,080 Treasury inflation protected bonds 647, , , ,349 Corporate bonds 2,215,042 2,187,279 2,115,757 2,087,664 Fixed income mutual funds 3,282,525 3,357,237 3,038,969 3,224,505 Foreign fixed income funds 1,118,347 1,024,421 1,064,896 1,012,842 International bonds 102, , , ,985 Common stock Industrials 244, , , ,352 Consumer discretionary 276, , , ,590 Financials 531, , , ,598 Information technology 1,008,603 1,556, ,991 1,357,632 Other industries 2,868,608 4,174,231 2,169,391 3,392,852 Foreign common stock 164, , , ,277 American depository receipts 144, , , ,992 Foreign equity mutual funds 1,002,508 1,153, ,418 1,136,337 Master limited partnership 744,021 1,018, ,189 1,079,123 Alternative equity hedge funds 1,129,963 1,357,817 1,129,963 1,303,895 $ 16,188,797 $ 19,897,076 $ 15,235,790 $ 19,094,073 Total investment income is comprised of the following: Interest and dividend income $ 514,649 $ 517,203 Net realized gains 695, ,267 Net unrealized gains (losses) (150,005) 1,590,227 $ 1,059,894 $ 2,396,697 8

10 Note 2. Investments and Investment Income (Continued) The following tables summarize the financial investments measured at fair value on a recurring basis, segregated by the general classification of such instruments pursuant to the valuation hierarchy: Total December 31, 2014 Fair Value Level 1 Level 2 Level 3 Government bonds $ 709,942 $ - $ 709,942 $ - Treasury inflation protected bonds 654, ,302 - Corporate bonds 2,187,279-2,187,279 - Fixed income mutual funds 3,357,237 3,357, Foreign fixed income funds 1,024,421 1,024, International bonds 100, ,620 - Common stock Industrials 524, , Consumer discretionary 757, , Financials 768, , Information technology 1,556,663 1,556, Other industries 4,174,231 4,174, Foreign common stock 327, , American depository receipts 223, , Foreign equity mutual funds 1,153,443 1,153, Master limited partnership 1,018,851 1,018, Alternative equity funds 1,357, ,357,817 $ 19,897,076 $ 14,887,116 $ 3,652,143 $ 1,357,817 9

11 Note 2. Investments and Investment Income (Continued) Total December 31, 2013 Fair Value Level 1 Level 2 Level 3 Government bonds $ 717,080 $ - $ 717,080 $ - Treasury inflation protected bonds 719, ,349 - Corporate bonds 2,087,664-2,087,664 - Fixed income mutual funds 3,224,505 3,224, Foreign fixed income funds 1,012,842 1,012, International bonds 103, ,985 - Common stock Industrials 698, , Consumer discretionary 767, , Financials 930, , Information technology 1,357,632 1,357, Other industries 3,392,852 3,392, Foreign common stock 366, , American depository receipts 195, , Foreign equity mutual funds 1,136,337 1,136, Master limited partnership 1,079,123 1,079, Alternative equity funds 1,303, ,303,895 $ 19,094,073 $ 14,162,100 $ 3,628,078 $ 1,303,895 Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows: Alternative Equity Funds December 31, 2012 $ 1,196,536 Net unrealized gains 107,359 December 31, ,303,895 Net unrealized gains 53,922 December 31, 2014 $ 1,357,817 Alternative Equity Funds Total gains, net, included in earnings attributable to the change in unrealized gains, net, relating to financial instruments still held $ 53,922 $ 107,359 10

12 Note 2. Investments and Investment Income (Continued) The following tables set forth additional disclosure of the NIPR s investments whose fair value is estimated using net asset value (NAV) per share (or its equivalent) as of December 31, 2014 and 2013: Fair Value Unfunded Redemption Redemption Investment December 31, 2014 Commitment Frequency Notice Period Alternative equity funds (A) $ 1,357,817 $ - Quarterly 95 days Fair Value Unfunded Redemption Redemption Investment December 31, 2013 Commitment Frequency Notice Period Alternative equity funds (A) $ 1,303,895 $ - Quarterly 95 days (A) This fund aims to generate consistent absolute returns by investing in assets with a diversified group of investment managers through managed account structures (Managed Account Structures) or in the private investment funds sponsored by investment managers (collectively, Hedge Fund Managers or Hedge Funds). Note 3. Property and Equipment Property and equipment at December 31 consisted of: Furniture and equipment $ 24,120 $ 20,167 Computer hardware 140, ,081 Computer software 35,073 35,073 Total cost 199, ,321 Less accumulated depreciation and amortization 184, ,596 $ 15,024 $ 3,725 11

13 Note 4. Related Party Transactions NIPR and NAIC executed a Licenses and Services Agreement (the Agreement) effective January 1, 2012, for an initial term of five years. The agreement will automatically renew each year thereafter unless either party provides written notice of termination to the other party no later than 180 days prior to the end of the renewal period. The terms of the agreement provide for (1) a 38 percent license fee for NIPR to use the NAIC s producer data; (2) the reimbursement of the actual cost of services, facilities and equipment provided to NIPR by the NAIC; and (3) the reimbursement of system usage fees related to ongoing infrastructure costs for NIPR. The total amount charged during the year and amounts owed at year-end are as follows: Administrative services provided by the NAIC $ 1,182,812 $ 1,115,147 License fee $ 10,205,523 $ 9,225,778 System Usage Fees $ 228,435 $ 218,557 Amounts payable to the NAIC $ 1,028,578 $ 914,981 Note 5. Defined Contribution Plan The NIPR has a defined contribution 401(k) plan (the Plan), which covers substantially all employees who have completed one year or more of service. Each year the Board of Directors determines the contribution for the next year. In 2014 and 2013, the NIPR matched up to 3.5 percent of contributions of those employees who contributed to the Plan and contributed 5 percent of all employees' annual compensation. Contribution expense was $345,016 and $376,547 for the years ended December 31, 2014 and 2013, respectively. Note 6. Significant Estimates and Concentrations U.S. generally accepted accounting principles requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Approximately 31 percent of all revenue for both of the years ended December 31, 2014 and 2013 was received from two business partners. Note 7. Subsequent Events Management has performed an evaluation of events that have occurred subsequent to December 31, 2014 through February 27, There have been no events that occurred during such period that would require disclosure in these financial statements or would be required to be recognized in the financial statements as of or for the year ended December 31,

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