[Rev. 11/22/2013 10:23:23 AM--2013]

[NAC-680A Revised Date: 11-13]

CHAPTER 680A - AUTHORIZATION OF INSURERS AND GENERAL REQUIREMENTS

GENERAL PROVISIONS

680A.002         Definitions.

680A.003         “Accountant” and “independent certified public accountant” defined.

680A.0035       “Affiliate” defined.

680A.004         “Annual Audited Financial Report” defined.

680A.005         “Audit committee” defined.

680A.008         “Commissioner” defined.

680A.009         “Direct written and assumed premiums” defined.

680A.010         “Division” defined.

680A.011         “Group of insurers” defined.

680A.013         “Insurance holding corporation” defined.

680A.014         “Internal control over financial reporting” defined.

680A.015         “Section 404” defined.

680A.016         “Section 404 Report” defined.

680A.017         “SOX Compliant Entity” defined.

680A.018         “Workpaper” defined.

MULTIPLE EMPLOYER WELFARE ARRANGEMENTS

680A.050         Applicability of provisions governing domestic insurers; qualification for certificate of authority.

SALES OF INSURANCE THROUGH VENDING MACHINES

680A.110         Conditions.

680A.120         License; fee.

680A.130         Special licenses.

680A.140         Inspection.

680A.150         Rental fees.

STATEMENT OF FINANCIAL CONDITION

680A.160         Filing requirements; exemptions.

ANNUAL AUDITED FINANCIAL REPORT

680A.172         Exemption from filing for certain qualified insurers; exceptions.

680A.173         Purpose of provisions.

680A.177         General requirements for filing; extensions; designation of audit committee.

680A.179         Contents of report.

680A.181         Independent certified public accountant: Designation; letter; dismissal or resignation.

680A.183         Qualifications of independent certified public accountant.

680A.187         Consolidated statement for group of insurance companies; contents of required worksheet.

680A.189         Audit of financial statements; adoption by reference of standards.

680A.191         Report of misstatements of financial condition or inability to meet minimum capital and surplus requirements.

680A.193         Additional report required on internal control; contents.

680A.195         Required letter by accountant.

680A.197         Review of workpapers.

680A.199         Exemption for certain insurers; requirements for audit committee.

680A.201         Prohibited conduct.

680A.203         Conditions under which Management’s Report on Internal Control Over Financial Reporting must be filed.

680A.205         Exemption to be granted or denied by Commissioner; hearing.

680A.207         Effective dates.

680A.209         Canadian and British insurers.

680A.211         Applicability.

DETERMINATION OF HAZARDOUS FINANCIAL CONDITION

680A.220         Commissioner to determine if continued operation of insurer is hazardous; considerations for determination.

680A.222         Variables allowed in determination process.

680A.224         Actions that may be taken by Commissioner if insurer determined to be in hazardous financial condition; exception.

680A.226         Hearing for review; notice.

680A.228         Termination or suspension of business: Rewriting insurance.

MISCELLANEOUS

680A.405         Countersignatures: Generally.

680A.410         Countersignatures: Property and casualty insurance.

 

 

GENERAL PROVISIONS

      NAC 680A.002  Definitions. (NRS 679B.130, 680A.265, 680A.270)  As used in this chapter, unless the context otherwise requires, the words and terms defined in NAC 680A.003 to 680A.018, inclusive, have the meanings ascribed to them in those sections.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.003  “Accountant” and “independent certified public accountant” defined. (NRS 679B.130, 680A.265)  “Accountant” or “independent certified public accountant” means:

     1.  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 the accountant or accounting firm is licensed to practice.

     2.  For an insurer domiciled in Canada or Great Britain, a chartered accountant.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R076-02, 9-20-2002)—(Substituted in revision for NAC 680A.006)

      NAC 680A.0035  “Affiliate” defined. (NRS 679B.130, 680A.265, 680A.270)  “Affiliate” has the meaning ascribed to it in NRS 692C.030.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.004  “Annual Audited Financial Report” defined. (NRS 679B.130, 680A.265)  “Annual Audited Financial Report” means:

     1.  The report which must be filed with the Commissioner in accordance with NRS 680A.265.

     2.  For an insurer domiciled in Canada or Great Britain, the annual statement of total business on the form filed by the insurer with its domiciliary supervision authority, duly audited by a chartered accountant.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R076-02, 9-20-2002)

      NAC 680A.005  “Audit committee” defined. (NRS 679B.130, 680A.265, 680A.270)  “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 and audits of financial statements of the insurer or group of insurers.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.008  “Commissioner” defined. (NRS 679B.130)  “Commissioner” means the Commissioner of Insurance.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96)

      NAC 680A.009  “Direct written and assumed premiums” defined. (NRS 679B.130, 680A.265, 680A.270)  “Direct written and assumed premiums” means the combined total of direct premiums from nonaffiliates for the reporting entities.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.010  “Division” defined. (NRS 679B.130)  “Division” means the Division of Insurance of the Department of Business and Industry.

     (Added to NAC by Comm’r of Insurance, eff. 5-27-92)

      NAC 680A.011  “Group of insurers” defined. (NRS 679B.130, 680A.265, 680A.270)  “Group of insurers” means those licensed insurers required to be reported by an insurance holding corporation pursuant to the provisions of chapter 692C of NRS, or a set of insurers identified by management for the purpose of assessing the effectiveness of internal control over financial reporting.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.013  “Insurance holding corporation” defined. (NRS 679B.130, 680A.265, 680A.270)  “Insurance holding corporation” has the meaning ascribed in NRS 692B.050.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.014  “Internal control over financial reporting” defined. (NRS 679B.130, 680A.265, 680A.270)  “Internal control over financial reporting” means a process effected by the board of directors, management and other personnel of an insurer or other entity and designed to provide reasonable assurance regarding the reliability of the financial statements required pursuant to NRS 680A.265 and 680A.270 and the regulations adopted pursuant thereto, including, without limitation, those policies and procedures that:

     1.  Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

     2.  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements, and that receipts and expenditures are being made only in accordance with the authorization of management and the board of directors; and

     3.  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 of the entity.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.015  “Section 404” defined. (NRS 679B.130, 680A.265, 680A.270)  “Section 404” means Section 404 of the Sarbanes-Oxley Act of 2002, Public Law 107-204, 15 U.S.C. § 7262, and the regulations adopted pursuant thereto.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.016  “Section 404 Report” defined. (NRS 679B.130, 680A.265, 680A.270)  “Section 404 Report” means the Management’s Report on Internal Control Over Financial Reporting, as defined by the Securities and Exchange Commission, and the related attestation report of the independent certified public accountant.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.017  “SOX Compliant Entity” defined. (NRS 679B.130, 680A.265, 680A.270)  “SOX Compliant Entity” means an entity that is required to comply with, or voluntarily complies with, the following provisions of the Sarbanes-Oxley Act of 2002, Public Law 107-204:

     1.  The requirements for preapproval pursuant to 15 U.S.C. § 78j-1(h);

     2.  The requirements for the independence of members of the audit committee pursuant to 15 U.S.C. § 78j-1(m)(3); and

     3.  The requirements for internal control evaluation and reporting pursuant to 15 U.S.C. § 7262(b).

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.018  “Workpaper” defined. (NRS 679B.130, 680A.265)  “Workpaper” means the record kept by an independent certified public accountant of the procedure followed, the test performed, the information obtained and the conclusion reached pertinent to his or her examination of the financial statements of an insurer. A workpaper includes, but is not limited to, an audit planning document, a work program, an analysis, a memorandum, a letter of confirmation and representation, an abstract of company documents and a schedule or commentary which are prepared or obtained by the independent certified public accountant in the course of his or her examination of the financial statements of an insurer and which support his or her opinion thereof.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R076-02, 9-20-2002)

MULTIPLE EMPLOYER WELFARE ARRANGEMENTS

      NAC 680A.050  Applicability of provisions governing domestic insurers; qualification for certificate of authority. (NRS 679B.130, 679B.139)

     1.  To the extent applicable and not inconsistent with federal law:

     (a) The provisions of chapter 680A of NRS that govern domestic insurers, their business, capital and surplus requirements and the requirements for eligibility for a certificate of authority govern multiple employer welfare arrangements; and

     (b) A multiple employer welfare arrangement must comply with the criteria set forth in this chapter and chapter 680A of NRS to qualify for a certificate of authority.

     2.  As used in this section, “multiple employer welfare arrangement” has the meaning ascribed to in 29 U.S.C. § 1002(40)(A).

     (Added to NAC by Comm’r of Insurance by R087-02, eff. 9-20-2002)

SALES OF INSURANCE THROUGH VENDING MACHINES

      NAC 680A.110  Conditions. (NRS 679B.130)  Insurance companies licensed to do an insurance business in Nevada may merchandise any type of insurance permitted by the Division through any type of vending machine under the following conditions:

     1.  All policy forms must be filed with, and approved by, the Commissioner in accordance with the filing procedures for other policy forms.

     2.  Reasonable means, as determined by the Commissioner, must be provided for informing the prospective purchaser of the coverage and restrictions of the policy.

     3.  The name of the insurer, the location of its home office, the name of the responsible producer of insurance appointed by the insurer and his or her office address, and the serial number of the machine must be clearly displayed on each machine.

     4.  Prompt refund of money inserted in a defective machine and for which no insurance, or a lesser amount than paid for, must be provided to the applicant or prospective applicant.

     5.  Vending machines must be constructed and operated to retain a copy of the application showing the date of application, name and address of the applicant and of the beneficiary and the amount of insurance afforded by each policy issued.

     6.  All machines must be operated under the supervision of a producer of insurance appointed by the insurer issuing the policies.

     7.  Vending machines must be constructed and operated to affix the facsimile signature of the producer of insurance appointed by the insurer upon all policies issued therefrom, unless the producer of insurance appointed by the insurer is on the premises and personally countersigns them.

     [Comm’r of Insurance, M-3 1st par. & subpars. 1 through 7, eff. 5-13-72]—(NAC A 5-27-92; R102-09, 1-28-2010)

      NAC 680A.120  License; fee. (NRS 679B.130)  No vending machine may be placed in use until an application has been made for a license for that machine, payment of all applicable fees has been made to the Division and the license has been issued.

     [Comm’r of Insurance, M-3 1st par. & subpar. 8, eff. 5-13-72]—(NAC A 5-27-92; R103-09, 1-28-2010)

      NAC 680A.130  Special licenses. (NRS 679B.130)

     1.  The Commissioner may issue a special vending machine license to the responsible agent. The license will apply to a specific machine or machines, and specify the name of the insurer and agent and the serial number or numbers of all machines included under that license.

     2.  The license is subject to annual continuation, expiration, suspension or revocation at the same time as the license of the agent.

     3.  Proof of the existence of a license for each vending machine in use may be required by the Commissioner.

     [Comm’r of Insurance, M-3 1st par. & subpar. 10, eff. 5-13-72]

      NAC 680A.140  Inspection. (NRS 679B.130)  Each licensed agent shall cause each vending machine to be inspected and tested with reasonable frequency, but not less than once each 7 days. If a machine is not in good working condition the agent shall cause a notice to be prominently displayed on the machine indicating that it is out of order. The notice must be maintained as long as the condition exists.

     [Comm’r of Insurance, M-3 1st par. & subpar. 9, eff. 5-13-72]

      NAC 680A.150  Rental fees. (NRS 679B.130)  The payment of excessive rental fees for insurance vending machines located in Nevada may result in withdrawal of approval by the Division of the forms authorized for use in the machines.

     1.  Fair and reasonable fees are:

     (a) Where the annual premium volume is less than $50,000, the maximum rental payment may not exceed 13 percent of gross sales.

     (b) Where the annual premium volume is between $50,000 and $100,000, the maximum rental fee payment may not exceed 17 1/2 percent of gross sales.

     (c) Where the annual premium volume is in excess of $100,000, the maximum rental fee payment may not exceed 25 percent of gross sales.

     2.  A contract which provides for a flat guaranteed rental which exceeds the permitted percentage of premium income is void.

     3.  Any contract which binds an insurance company, its agents or representatives, the fee for which exceeds the rental fees permitted by this section, may not be renewed except for the rental fee authorized by this section.

     [Comm’r of Insurance, M-3 part 2nd par., eff. 5-13-72]

STATEMENT OF FINANCIAL CONDITION

      NAC 680A.160  Filing requirements; exemptions. (NRS 679B.130, 679B.136, 680A.270)

     1.  The annual statement required to be filed pursuant to NRS 680A.270 must contain exhibits and schedules that follow the specifications developed by the National Association of Insurance Commissioners.

     2.  Information from the insurer’s annual statement must be filed:

     (a) Pursuant to the specifications adopted by the National Association of Insurance Commissioners for filing information in an electronic format;

     (b) At the central office of the National Association of Insurance Commissioners, 2301 McGee Street, Suite 800, Kansas City, Missouri 64108-2662; and

     (c) On or before March 1 of each year.

     3.  If a foreign or alien insurer files a statement in an electronic format with the National Association of Insurance Commissioners, that statement will be deemed to have been filed with the Commissioner if the foreign or alien insurer has paid the applicable fees set forth in NRS 680B.010.

     4.  The form of an annual statement required by NRS 680A.270 to be filed with the Commissioner must be the most recent adopted by the National Association of Insurance Commissioners for the type of insurer reporting. Each insurer filing the form shall follow the most recent instructions adopted by the National Association of Insurance Commissioners for the type of annual statement to be filed. These forms may be obtained from the National Association of Insurance Commissioners, Publications Department, 2301 McGee Street, Suite 800, Kansas City, Missouri 64108-2662, or at the Internet address http://www.naic.org/, for the price of $200 each.

     5.  If necessary to determine a foreign or an alien insurer’s financial condition, fulfillment of contractual obligations and compliance with law, the Commissioner will require the foreign or alien insurer to file a financial statement more frequently than annually. Such a statement must be:

     (a) Filed on the most current form adopted by the National Association of Insurance Commissioners for the type of insurer reporting;

     (b) Completed in accordance with the instructions accompanying that form; and

     (c) Filed with the National Association of Insurance Commissioners in an electronic format.

     6.  Each domestic insurer shall file a quarterly statement. A quarterly statement must be:

     (a) Filed on the most current form adopted by the National Association of Insurance Commissioners for the type of insurer reporting;

     (b) Completed in accordance with the instructions accompanying that form; and

     (c) Filed with the National Association of Insurance Commissioners in an electronic format.

     7.  A domestic insurer that is not licensed or authorized to do business in any state other than this State may apply for an exemption from the requirement to complete the “Statement of Actuarial Opinion” required by the Annual Statement Instructions of the National Association of Insurance Commissioners as part of the domestic insurer’s annual statement. The application must:

     (a) Be in writing.

     (b) Be submitted by December 1 of the calendar year which will be covered in the annual statement.

     (c) Include an agreement and acknowledgment from the domestic insurer that the Commissioner may use the services of an independent actuary to certify losses and reserves for loss adjustment expenses in relation to any examination of the domestic insurer pursuant to NRS 679B.230.

     (d) Demonstrate that no significant changes and no unusual or large claims have occurred or are expected to occur during the calendar year which will be covered in the annual statement.

     8.  The Commissioner will grant an application for an exemption made pursuant to subsection 7 if he or she determines, upon review of the application, that having to file the “Statement of Actuarial Opinion” would constitute a financial or organizational hardship upon the domestic insurer or that the insurer has shown other good cause why it should not have to file the statement. A domestic insurer which has been granted an exemption pursuant to this subsection must file with its annual statement a signed affidavit given by one of its officers under oath that certifies the accuracy and adequacy of the reserves stated in its annual statement.

     9.  A domestic insurer licensed only to sell insurance for home protection but not licensed or authorized to do business in any state other than this State is exempt from the requirement to complete the “Statement of Actuarial Opinion” required by the Annual Statement Instructions of the National Association of Insurance Commissioners as part of the annual statement of the domestic insurer if the domestic insurer:

     (a) Completes and submits with its annual statement forms provided by the Commissioner for reporting information concerning claims;

     (b) Complies with the requirements of paragraphs (c) and (d) of subsection 7; and

     (c) Submits with its annual statement a signed affidavit given by one of its officers under oath that certifies the accuracy and adequacy of the reserves stated in its annual statement.

     10.  A domestic insurer that is not licensed or authorized to do business in any state other than this State is not required to file information from its annual statement with the National Association of Insurance Commissioners as required pursuant to subsection 2 if the written premium of the domestic insurer for the year is less than $1,000,000.

     (Added to NAC by Comm’r of Insurance, eff. 12-9-91; A 3-20-96; R025-02, 5-31-2002; R116-02, 3-18-2003; R244-03, 7-26-2004; R173-08, 2-11-2009)

ANNUAL AUDITED FINANCIAL REPORT

      NAC 680A.172  Exemption from filing for certain qualified insurers; exceptions. (NRS 679B.130, 680A.265)  For the purposes of NRS 680A.265, the Commissioner will find that good cause exists for the exemption of an insurer from the requirements of NRS 680A.265 for the immediately preceding calendar year if, at the end of that year, the insurer has direct premiums written in this State in an amount which is less than $1,000,000 and has less than 1,000 policyholders, certificate holders, enrollees, members or subscribers of directly written policies in the United States unless:

     1.  The Commissioner makes a specific finding that compliance by that insurer is necessary for the Commissioner to carry out his or her statutory responsibilities; or

     2.  The insurer has assumed premiums pursuant to contracts or treaties of reinsurance in an amount of $1,000,000 or more.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R076-02, 9-20-2002; R244-03, 7-26-2004; R082-06, 9-18-2006)

      NAC 680A.173  Purpose of provisions. (NRS 679B.130, 680A.265, 680A.270)

     1.  The purpose of NAC 680A.173 to 680A.211, inclusive, is to improve the Division’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) The filing of a Communication of Internal Control Related Matters Noted in an Audit; and

     (c) The filing of a Management’s Report on Internal Control Over Financial Reporting.

     2.  A foreign or alien insurer is exempt from the provisions of NAC 680A.177 to 680A.197, inclusive, if:

     (a) The insurer files an Audited Financial Report with the insurance regulatory authority of another state pursuant to the requirements of that state for filing an annual Audited Financial Report, if such requirements have been found by the insurance regulatory authority to be substantially similar to the requirements of this chapter; and

     (b) Copies of the following that are filed with the insurance regulatory authority of that state are filed with the Commissioner in accordance with the filing dates specified in NAC 680A.177, 680A.191, 680A.193 and 680A.195, respectively:

          (1) An annual Audited Financial Report;

          (2) Notification of Adverse Financial Condition;

          (3) Communication of Internal Control Related Matters Noted in an Audit; and

          (4) An Accountant’s Letter of Qualifications.

     3.  A foreign or alien insurer required to file the Management’s Report on Internal Control Over Financial Reporting with the insurance regulatory authority of another state is exempt from filing in this State if the other state has substantially similar reporting requirements and if the report is filed with the insurance regulatory authority of the other state within the time specified.

     4.  The provisions of NAC 680A.173 to 680A.211, inclusive, do not prohibit, preclude or in any way limit the authority of the Commissioner to order, conduct or perform examinations of an insurer pursuant to the provisions of chapter 679B of NRS and the regulations adopted pursuant thereto.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.177  General requirements for filing; extensions; designation of audit committee. (NRS 679B.130, 680A.265, 680A.270)

     1.  All insurers shall have an annual audit conducted by an independent certified public accountant and, except as otherwise provided in this subsection and subsection 2, shall file with the Commissioner an annual Audited Financial Report for each year on or before June 1 of the following year. The Commissioner may require an insurer to file an Audited Financial Report earlier than June 1 if the Commissioner provides at least 90 days’ advance notice to the insurer.

     2.  Subject to the provisions of this subsection and NRS 680A.265, upon good cause shown by the insurer and its independent certified public accountant, the Commissioner may grant one or more 30-day extensions of the filing date. A request for an extension must be submitted in writing not less than 10 days before the date on which the annual Audited Financial Report is to be filed and must contain sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

     3.  If an extension is granted pursuant to subsection 2 for filing the Audited Financial Report, a 30-day extension of the filing date of the Management’s Report on Internal Control Over Financial Reporting is also granted.

     4.  Every insurer required to file an annual Audited Financial Report pursuant to NAC 680A.173 to 680A.211, inclusive, shall designate a group of individuals as its audit committee. The audit committee of an entity that controls an insurer may be deemed the audit committee of the insurer for purposes of NAC 680A.173 to 680A.211, inclusive.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.179  Contents of report. (NRS 679B.130, 680A.265, 680A.270)

     1.  The annual Audited Financial Report must include a report of the financial position of the insurer as of the end of the most recent calendar year and the results of the insurer’s operations, cash flows and changes in capital and surplus for that year, in conformity with statutory accounting practices prescribed, or otherwise permitted, by the insurance regulatory authority of the state of domicile.

     2.  The annual Audited Financial Report must include, without limitation:

     (a) A report of an independent certified public accountant;

     (b) A balance sheet reporting admitted assets, liabilities, capital and surplus;

     (c) A statement of operations;

     (d) A statement of cash flow;

     (e) A statement of changes in capital and surplus;

     (f) A summary of the ownership and relationships of the insurer and each of its affiliated companies, if any; and

     (g) All notes to financial statements required by the appropriate annual statement instructions manual, as adopted by reference in NAC 679B.033, and the Accounting Practices and Procedures Manual, as adopted by reference in NAC 679B.033. The notes must include a reconciliation of differences, if any, between the annual Audited Financial Report filed with the Commissioner pursuant to NRS 680A.265 and the annual statement filed with the Commissioner pursuant to NRS 680A.270, with a written description of the nature of these differences.

     3.  The financial statements included in the annual Audited Financial Report must be:

     (a) Prepared in a form and using language and groupings that are substantially similar to the relevant sections of the annual statement of the insurer filed with the Commissioner pursuant to NRS 680A.270; and

     (b) Comparative, presenting the amounts as of December 31 of the most recent calendar year and the amounts as of December 31 of the immediately preceding calendar year, except that, in the first year in which an insurer is required to file an annual Audited Financial Report, the insurer may include only the data from the most recent year, omitting the comparative data from the immediately preceding calendar year.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.181  Independent certified public accountant: Designation; letter; dismissal or resignation. (NRS 679B.130, 680A.265, 680A.270)

     1.  Each insurer required to file an annual Audited Financial Report pursuant to NRS 680A.265 and the regulations adopted pursuant thereto must, within 60 days after becoming subject to the requirement, 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. An insurer who has not retained an independent certified public accountant or accounting firm on or before January 1, 2010, shall register with the Commissioner the name and address of the independent certified public accountant or accounting firm retained by the insurer not less than 6 months before the date when the first annual Audited Financial Report is to be filed.

     2.  The insurer shall obtain from the accountant, and shall file with the Commissioner, a copy of a letter stating that the accountant is aware of the provisions of title 57 of NRS and the regulations adopted pursuant thereto that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the provisions of title 57 of NRS and the regulations adopted pursuant thereto, specifying such exceptions as he or she may believe appropriate.

     3.  Subject to the provisions of subsections 4 and 5, if an independent certified public accountant who was the accountant for the most recent filing of the annual Audited Financial Report is dismissed or resigns, the insurer shall, within 5 business days after the dismissal or resignation, notify the Commissioner of the dismissal or resignation. Within 10 business days after notifying the Commissioner of the dismissal or resignation of the accountant, the insurer shall file with the Commissioner a separate letter stating whether, during the 24 months preceding the dismissal or resignation, there were any disagreements between the former accountant and the insurer on any matter of accounting principles or practices, financial statement disclosure, or the scope or procedure of an audit and which disagreements, if not resolved to the satisfaction of the former accountant, would have caused the accountant to make a reference to the subject matter of the disagreement in connection with his or her opinion filed with the annual Audited Financial Report of the insurer.

     4.  The disagreements that are required to be reported pursuant to subsection 3 include both those resolved and those not resolved to the satisfaction of the former accountant. The disagreements contemplated by this section are those disagreements that occur at the decision-making level, including, without limitation, disagreements between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report.

     5.  The insurer shall request in writing that the former accountant 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 he or she does not agree. The insurer shall furnish the responsive letter from the former accountant to the Commissioner together with its own letter.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.183  Qualifications of independent certified public accountant. (NRS 679B.130, 680A.265, 680A.270)

     1.  The Commissioner will not recognize a 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 an insurer domiciled in Canada or Great Britain, is not a chartered accountant or accounting firm; or

     (b) Has either directly or indirectly entered into an agreement of indemnity or release from liability, with respect to the audit of the insurer, where the intent or effect is to shift or limit in any manner the potential liability of the 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.

     2.  The Commissioner will recognize an independent certified public accountant as qualified if the accountant conforms to the standards contained in the AICPA Code of Professional Conduct and Bylaws. As used in this subsection, “AICPA” means the American Institute of Certified Public Accountants.

     3.  A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to the annual Audited Financial Report that has been certified by the independent certified public accountant resolved by mediation or arbitration. If a delinquency proceeding has commenced against an insurer pursuant to chapter 696B of NRS, any such mediation or arbitration provision is enforceable at the option of the statutory successor in interest to the insurer.

     4.  Beginning with the reporting period beginning on January 1, 2010, and subject to the provisions of subsections 5, 6 and 7, the lead or coordinating audit partner having primary responsibility for the audit may not act in that capacity for more than 5 consecutive years, beginning when the insurer registers the independent certified public accountant with the Commissioner pursuant to NAC 680A.183. The independent certified public accountant shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of 5 consecutive years.

     5.  An insurer may apply to the Commissioner for permission for an independent certified public accountant to continue in his or her capacity in rendering the annual Audited Financial Report of the insurer for more than 5 consecutive years or to return to a position which would be responsible for rendering an annual Audited Financial Report for the insurer and its subsidiary or affiliate in less than 5 years, upon a showing of unusual circumstances. The application must be made at least 30 days before the end of the calendar year.

     6.  The Commissioner will consider, without limitation, the following factors in determining whether to grant an exception pursuant to subsection 5:

     (a) Whether the independent certified public accountant is an accounting firm, the number of partners within the accounting firm and the expertise of those partners;

     (b) The number of insurers who are clients of the accounting firm;

     (c) The premium volume of the insurer; and

     (d) The number of jurisdictions in which the insurer transacts business.

     7.  The insurer shall file with its annual statement filing the approval from the Commissioner for the exception granted pursuant to subsection 5 with the states in which it is licensed or doing business 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.

     8.  The Commissioner will not recognize as a qualified independent certified public accountant, or accept an annual Audited Financial Report prepared in whole or in part by, a natural person who:

     (a) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 to 1968, inclusive, or any dishonest conduct or practices under federal or state law;

     (b) Has been found to have violated any provision of title 57 of NRS or any regulation adopted pursuant thereto with respect to any previous reports submitted pursuant to NRS 680A.265 and the regulations adopted pursuant thereto; or

     (c) Has demonstrated a pattern or practice of failing to detect or disclose material information in any previous annual Audited Financial Report filed pursuant to NRS 680A.265 and the regulations adopted pursuant thereto.

     9.  The Commissioner may, pursuant to the provisions of NAC 679B.161 to 679B.480, inclusive, hold a hearing to determine whether an independent certified public accountant is qualified for the purposes of NRS 680A.265 and the regulations adopted pursuant thereto. If, based on the evidence presented, the Commissioner determines that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual Audited Financial Report made pursuant to NRS 680A.265 and the regulations adopted pursuant thereto, the Commissioner may require the insurer to replace the accountant with an independent certified public accountant who is qualified.

     10.  Except as otherwise provided in subsection 12, the Commissioner will not recognize as a qualified independent certified public accountant, or accept an annual Audited Financial Report prepared in whole or in part by, an accountant who provides to an insurer, contemporaneously with the audit, any of the following nonaudit services:

     (a) Bookkeeping or other services relating to the accounting records or financial statements of the insurer.

     (b) The design and implementation of a financial information system.

     (c) Appraisal or valuation services, fairness opinions or contribution-in-kind reports.

     (d) 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 of an insurer’s reserves if the following conditions have been met:

          (1) Neither the accountant nor the accountant’s actuary have performed any management functions or made any management decisions;

          (2) The insurer has competent personnel or engages a competent third-party actuary to estimate the reserves for which management takes responsibility; and

          (3) The accountant’s actuary tests the reasonableness of the reserves after the insurer’s management has determined the amount of the reserves.

     (e) Internal audit outsourcing services.

     (f) Management function or human resources.

     (g) Broker or dealer, investment advisor or investment banking services.

     (h) Legal services or expert services unrelated to the audit.

     (i) Any other services that the Commissioner determines are impermissible.

     11.  With respect to services provided by a qualified independent certified public accountant, the principles of independence are based on, without limitation, the following three basic principles and any violation of these principles would impair the accountant’s independence:

     (a) The accountant may not function in the role of management;

     (b) The accountant may not audit his or her own work; and

     (c) The accountant may not serve in an advocacy role for the insurer.

     12.  An insurer having direct written and assumed premiums of less than $100 million in any calendar year may request an exemption from the provisions of subsection 10. To make such a request the insurer must file with the Commissioner a written statement discussing the reasons why the insurer should be so exempt. If the Commissioner finds, upon review of this statement, that compliance with NAC 680A.173 to 680A.211, inclusive, would constitute a financial or organizational hardship upon the insurer, the Commissioner will grant the exemption.

     13.  A qualified independent certified public accountant who performs the audit may engage in other nonaudit services, including tax services, that are not described in subsection 10 or that do not conflict with subsection 10 only if the activity is approved in advance by the audit committee, in accordance with subsection 14.

     14.  All auditing services and nonaudit services provided to an insurer by the qualified independent certified public accountant of the insurer must be preapproved by the audit committee. The preapproval requirement is waived with respect to nonaudit services if:

     (a) The insurer is a SOX Compliant Entity or a direct or indirect wholly owned subsidiary of a SOX Compliant Entity; or

     (b) The following conditions are met:

          (1) The aggregate amount of all such nonaudit services provided to the insurer constitutes not more than 5 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;

          (2) The services were not recognized by the insurer at the time of the engagement to be nonaudit services; and

          (3) The services are promptly brought to the attention of the audit committee and, before completion of the audit, are approved 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.

     15.  The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by subsection 14. The decisions of any member to whom this authority is delegated must be presented to the full audit committee at each of its scheduled meetings.

     16.  Except as otherwise provided in subsection 17, the Commissioner will 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, 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 1-year period preceding the date on which the most current statutory opinion is due. This section only applies to partners and senior managers involved in the audit.

     17.  The Commissioner may, upon a written application by the insurer, grant an exception from the provisions of subsection 16 on the basis of unusual circumstances.

     18.  The insurer shall file, with its annual statement filing, a copy of the approval of the exception granted pursuant to the provisions of subsection 17 with any state in which it is licensed or doing business 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.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.187  Consolidated statement for group of insurance companies; contents of required worksheet. (NRS 679B.130, 680A.265, 680A.270)

     1.  An insurer may apply in writing to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of a separate annual Audited Financial Report if the insurer:

     (a) Is part of a group of insurance companies that uses a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves; and

     (b) Cedes all of its direct and assumed business to the pool.

     2.  If the Commissioner approves the consolidated or combined filing, the insurer shall file with its report a columnar consolidating or combining worksheet as follows:

     (a) The amounts shown on the consolidated or combined annual Audited Financial Report must be shown on the worksheet;

     (b) The amounts for each insurer subject to the consolidated or combined annual Audited Financial Report filed pursuant to NRS 680A.265 and the regulations adopted pursuant thereto must be stated separately;

     (c) The amounts from the operations of the insurer which are not related to insurance must be shown on the worksheet on a combined or individual basis;

     (d) Explanations of entries which are consolidated or eliminated must be included; and

     (e) A reconciliation must be included of any differences between the amount shown on the column for the individual insurer and the comparable amount shown on the annual statement of the insurers.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.189  Audit of financial statements; adoption by reference of standards. (NRS 679B.130, 680A.265, 680A.270)

     1.  The insurer’s financial statements must be examined by an independent certified public accountant for the purposes of NRS 680A.265 and the regulations adopted pursuant thereto. The audit of the insurer’s financial statements must be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319, Consideration of Internal Control in a Financial Statement Audit, included in the AICPA Professional Standards, as adopted by reference in subsection 2, the independent certified public accountant must obtain an understanding of the insurer’s internal control sufficient to plan the audit. If required by AU Section 319, for those insurers required to file a Management’s Report on Internal Control Over Financial Reporting pursuant to NAC 680A.203, the independent certified public accountant shall consider the most recently available report in planning and performing the audit of the financial statements. Consideration should be given to the procedures set forth in the Financial Condition Examiners Handbook, adopted by reference in NAC 679B.033, as the independent certified public accountant deems necessary.

     2.  The AICPA Professional Standards are hereby adopted by reference and may be obtained by mail from the American Institute of Certified Public Accountants, Member Service Center, Order Processing, 220 Leigh Farm Road, Durham, North Carolina 27707-8110 or by ordering via telephone at (888) 777-7077, by facsimile at (800) 362-5066 or on the Internet at http://www.cpa2biz.com at the price of $135 for members of the American Institute of Certified Public Accountants and $168.75 for nonmembers.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.191  Report of misstatements of financial condition or inability to meet minimum capital and surplus requirements. (NRS 679B.130, 680A.265, 680A.270)

     1.  An insurer required to furnish an annual Audited Financial Report shall require the independent certified public accountant to report, in writing and within 5 business days, to the board of directors or its audit committee each determination by the independent certified public accountant that the insurer:

     (a) Has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under audit; or

     (b) As of that date, does not meet the minimum capital and surplus requirements as set forth in this chapter and chapter 680A of NRS.

     2.  An insurer who receives a report from its independent certified public accountant pursuant to this section shall, within 5 business days after receipt of the report:

     (a) Forward a copy of the report to the Commissioner; and

     (b) Provide evidence to the independent certified public accountant making the report that the insurer has forwarded a copy of the report to the Commissioner.

     3.  If the independent certified public accountant fails to receive the evidence within the required period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next 5 business days.

     4.  An independent certified public accountant shall not be liable in any manner to any person for any statement made in connection with subsection 1, 2 or 3 if the statement is made in good faith in compliance with this section.

     5.  If, after the date on which the Audited Financial Report has been filed pursuant to NRS 680A.265 and the regulations adopted pursuant thereto, the independent certified public accountant becomes aware of facts that might have affected his or her report, the accountant shall take such action as prescribed in AU Section 561, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report, of the AICPA Professional Standards, adopted by reference in NAC 680A.189.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.193  Additional report required on internal control; contents. (NRS 679B.130, 680A.265, 680A.270)

     1.  In addition to the annual Audited Financial Report, each insurer shall furnish the Commissioner with a completed Communication of Internal Control Related Matters Noted in an Audit as to any unremediated material weaknesses in its internal control over financial reporting noted during the audit.

     2.  The report required pursuant to the provisions of this section must be prepared by the independent certified public accountant within 60 days after the date on which the annual Audited Financial Report is filed with the Commissioner and must contain a description of any unremediated material weakness in the insurer’s internal control over financial reporting noted during the audit of the insurer’s financial statements by the accountant, as of December 31 of the most recent calendar year.

     3.  If there are no unremediated material weaknesses noted, the report to the Commissioner must state that there are no unremediated material weaknesses noted.

     4.  The insurer must provide a description of any remedial actions taken or proposed to be taken to correct any unremediated material weaknesses, if the actions taken by the insurer are not described in the accountant’s report.

     5.  As used in this section, “unremediated material weakness” has the meaning ascribed to it in the Statements of Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit, included in the AICPA Professional Standards, adopted by reference in NAC 680A.189.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.195  Required letter by accountant. (NRS 679B.130, 680A.265, 680A.270)  An independent certified public accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual Audited Financial Report, a letter which states each of the following:

     1.  That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the AICPA Code of Professional Conduct and Bylaws, the pronouncements of the American Institute of Certified Public Accountants and the Rules of Professional Conduct of the Nevada State Board of Accountancy.

     2.  The background and experience of the accountant in general, the experience of the staff of the accountant in audits of insurers, and whether each member of that staff which will audit the insurer is an independent certified public accountant. The provisions of NAC 680A.173 to 680A.211, inclusive, will not be construed as prohibiting the accountant from using such staff as he or she deems necessary if such use of staff is consistent with the standards prescribed by generally accepted auditing standards.

     3.  That the accountant understands that the annual Audited Financial Report and his or her opinion thereon will be filed pursuant to NRS 680A.265 and the regulations adopted pursuant thereto, and that the Commissioner will be relying on this information to monitor and regulate the financial position of the insurers.

     4.  That the accountant consents to the requirements of NAC 680A.197 and that the accountant consents and agrees to make available for review by the Commissioner, or the Commissioner’s designee or appointed agent, the workpapers as defined in NAC 680A.197.

     5.  That the accountant is properly licensed, certified or chartered by the appropriate licensing authority in the state or country in which the accountant is licensed, certified or chartered and that the accountant is a member in good standing of the American Institute of Certified Public Accountants.

     6.  That the accountant is in compliance with the requirements for a qualified independent certified public accountant as set forth in NAC 680A.183.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.197  Review of workpapers. (NRS 679B.130, 680A.265, 680A.270)

     1.  Every insurer required to file an annual Audited Financial Report pursuant to NRS 680A.265 and the regulations adopted pursuant thereto shall require the independent certified public accountant to make available for review by the Commissioner, or his or her designated agent, 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, the Division, or at any other reasonable place designated by the Commissioner. The insurer shall require that the independent certified public accountant retain the workpapers and communications relating to the audit until the Division has filed a report on the examination covering the period of the audit but not longer than 7 years from the date of the Audited Financial Report.

     2.  To complete the periodic review of the workpapers of the independent certified public accountant pertaining to its audit of the financial statements, the examiners of the Division may make and retain a photocopy of any pertinent workpapers relating to the audit. All workpapers and communications obtained during the course of such reviews must be afforded the same confidentiality as other examination workpapers generated by the Division.

     3.  As used in this section, “workpapers” means the records kept by an independent certified public accountant of the procedure followed, the test performed, the information obtained and the conclusion reached pertinent to the accountant’s audit of the financial statements of an insurer. The term includes, without limitation, 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 his or her audit of the financial statements of an insurer and which support the accountant’s opinion.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.199  Exemption for certain insurers; requirements for audit committee. (NRS 679B.130, 680A.265, 680A.270)

     1.  The provisions of this section do not apply to a foreign or alien insurer 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.

     2.  The audit committee shall be directly responsible for the appointment, compensation and oversight of the work of any accountant for the purpose of preparing or issuing the Audited Financial Report or related work pursuant to NAC 680A.173 to 680A.211, inclusive. Any dispute between the management of the insurer and the accountant during the course of the audit regarding the financial reporting for the preparation or issuance of the annual Audited Financial Report of the insurer must be resolved by the audit committee. Each accountant shall report directly to the audit committee.

     3.  Each member of the audit committee must be a member of the board of directors of the insurer or a member of the board of directors of an entity that controls a group of insurers. If an audit committee is not designated by the insurer, the insurer’s entire board of directors shall constitute the audit committee.

     4.  Except as otherwise provided in this subsection, to be considered independent for the purposes of this section, a member of the audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board or committee, accept any consulting, advisory or other compensatory fee from the entity or be an affiliated person of the entity or any subsidiary thereof. If, by law, participation on the board of directors by otherwise nonindependent members is required, 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. 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 NAC 680A.173 to 680A.211, inclusive, at the election of the controlling person.

     5.  If a member of the audit committee ceases to be independent for reasons outside the member’s reasonable control, the insurer shall provide notice to the Commissioner, and the member may remain an audit committee member of the insurer until the earlier of the next annual meeting of the insurer or 1 year after 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 NAC 680A.173 to 680A.211, inclusive, the ultimate controlling person shall provide written notice to the insurance regulatory authority of other affected states. Notification must be made timely before the issuance of the Audited Financial Report and include a description of the basis for the election. The election may be changed through notice to the Commissioner by the insurer, which must include a description of the basis for the change. The election remains in effect for perpetuity or until rescinded.

     7.  The audit committee shall require the independent certified public accountant that performs any audit for an insurer as required by NAC 680A.173 to 680A.211, inclusive, to timely report to the audit committee in accordance with the requirements of Statements of Auditing Standards No. 61, Communication with Audit Committees, included in the AICPA Professional Standards, as adopted by reference in NAC 680A.189, including, without limitation:

     (a) All significant accounting policies and material permitted practices;

     (b) All material alternative treatments of financial information within statutory accounting principles that have been discussed with the management of the insurer, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and

     (c) Any other material written communications between the independent certified public accountant and the management of the insurer, including any management letter or schedule of unadjusted differences.

     8.  If an insurer is a member of an insurance holding company system, the reports required by subsection 7 may be provided to the audit committee on an aggregate basis for the insurers in the holding company system if the independent certified accountant identifies to the audit committee any substantial differences among insurers in the system.

     9.  The proportion of independent audit committee members must meet or exceed the following criteria:

 

Previous Calendar Year Direct Written and Assumed Premiums

$0 – 300,000,000

$300,000,001 – 500,000,000

Over $500,000,000

No minimum requirements.

Majority (50 percent or more) of members shall be independent.

Supermajority (75 percent or more) of members shall be independent.

 

     10.  The Commissioner may require the board of directors of an insurer or a group of insurers to enact improvements to the independence of the audit committee membership, if:

     (a) The insurer is subject to filing the Risk-Based Capital (RBC) Report and the insurer has identified a risk-based capital action level event pursuant to the provisions of NAC 681B.400 to 681B.595, inclusive;

     (b) The insurer meets one or more of the standards of an insurer deemed to be in hazardous financial condition identified pursuant to NRS 680A.205 and NAC 680A.220 to 680A.226, inclusive; or

     (c) The insurer otherwise exhibits qualities of a troubled insurer.

     11.  All insurers with less than $500 million in direct written and assumed premiums for the previous calendar year are encouraged to structure their audit committees with at least a supermajority of independent audit committee members.

     12.  An insurer with direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and the National Flood Insurance Program, of less than $500 million may apply in writing to the Commissioner for a waiver from the requirements of this section based on hardship. If the waiver is granted, the insurer shall file, with its annual statement filing, the approval for the waiver with the states in which it is licensed or doing business 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.

     13.  The requirements of this section become effective on January 1, 2010, except that:

     (a) 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 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 premiums must comply with the independence requirements within 1 year after the year the threshold is exceeded; and

     (b) An insurer that becomes subject to one of the independence requirements because of a business combination must comply with the independence requirements within 1 calendar year after the date of acquisition or combination.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.201  Prohibited conduct. (NRS 679B.130, 680A.265, 680A.270)

     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 NAC 680A.173 to 680A.211, inclusive; or

     (b) In light of the circumstances under which the statements were made, omit to state, or cause another person to omit to state, any material fact necessary for the annual Audited Financial Report, in order to make statements made to be misleading to an accountant in connection with any audit, review or communication required by NAC 680A.173 to 680A.211, inclusive.

     2.  No director or officer 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 NAC 680A.173 to 680A.211, inclusive, if that person knew or should have known that the action, if successful, could result in rendering the insurer’s financial statements materially misleading. Such actions include, without limitation, 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 an annual Audited Financial Report on an insurer’s financial statements that may be materially misleading, if not warranted by the circumstances because of material violations of statutory accounting principles prescribed by the Commissioner, generally accepted auditing standards, or other professional or regulatory standards;

     (b) Not to perform an audit, review or other procedure 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.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.203  Conditions under which Management’s Report on Internal Control Over Financial Reporting must be filed. (NRS 679B.130, 680A.265, 680A.270)

     1.  Except as otherwise provided in subsections 2 and 3, beginning with the reporting period ending December 31, 2010, and each year thereafter, every insurer required to file an Audited Financial Report pursuant to NRS 680A.265 and the regulations adopted pursuant thereto that has annual direct written and assumed premiums of $500 million or more, excluding premiums reinsured with the Federal Crop Insurance Corporation and the National Flood Insurance Program, must prepare a report of the insurer’s or group of insurers’ internal control over financial reporting. The Management’s Report on Internal Control Over Financial Reporting must be filed with the Commissioner along with the Communication of Internal Control Related Matters Noted in an Audit report described in NAC 680A.193. The Management’s Report on Internal Control Over Financial Reporting must be current as of the previous December 31.

     2.  An insurer or a group of insurers:

     (a) That is not required to file an Audited Financial Report because the total written premium of the insurer or group of insurers is below the threshold and subsequently becomes subject to the reporting requirements shall file the Management’s Report on Internal Control Over Financial Reporting within 2 years after the year in which the threshold is exceeded; or

     (b) That is acquired in a business combination shall file the Management’s Report on Internal Control Over Financial Reporting within 2 calendar years after the date of acquisition or combination.

     3.  In addition to an insurer described in subsection 1, the Commissioner may require an insurer to file the Management’s Report on Internal Control Over Financial Reporting if:

     (a) The insurer is subject to the Risk-Based Capital Report pursuant to the provisions of NRS 681B.290 and the insurer has identified a risk-based capital action level event that requires the insurer to file a corrective action plan pursuant to the provisions of NAC 681B.400 to 681B.595, inclusive;

     (b) The insurer meets one or more of the standards of an insurer deemed to be in hazardous financial condition identified pursuant to the provisions of NRS 680A.205 and NAC 680A.220 to 680A.226, inclusive; or

     (c) The insurer otherwise exhibits qualities of a troubled insurer.

     4.  An insurer or group of insurers that is:

     (a) Directly subject to the provisions of Section 404;

     (b) A member of a holding company system whose parent is directly subject to Section 404;

     (c) Not directly subject to Section 404 but 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,

Ê may file its or its parent’s Section 404 Report and an addendum in satisfaction of this section’s requirement, if 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’ statutory Audited Financial Reports were included in the scope of the Section 404 Report. The addendum must be a positive statement by the management of the insurer that there are no material processes with respect to the preparation of the insurer’s or group of insurers’ statutory Audited Financial Reports excluded from the Section 404 Report.

     5.  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’ statutory Audited Financial Reports and those internal controls were not included in the scope of the Section 404 Report, the insurer or group of insurers may file:

     (a) The Management’s Report on Internal Control Over Financial Reporting; or

     (b) The Section 404 Report and the Management’s Report on Internal Control Over Financial Reporting for those internal controls that have a material impact on the preparation of the insurer’s or group of insurers’ statutory Audited Financial Reports not covered by the Section 404 Report.

     6.  A Management’s Report on Internal Control Over Financial Reporting must include each of the following:

     (a) A statement that the management of the insurer is responsible for establishing and maintaining adequate internal control over financial reporting.

     (b) A statement that the management of the insurer has established internal control over financial reporting and an assertion, to the best of the 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 the management of the insurer 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) A statement disclosing any unremediated material weaknesses in the internal control over financial reporting identified by the management of the insurer as of the previous December 31. The management of the insurer may not 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 are one or more unremediated material weaknesses in its internal control over financial reporting.

     (f) A statement regarding the inherent limitations of internal control systems.

     (g) Signatures of the chief executive officer and the chief financial officer or, in the absence of one of these positions, signatures of two other principal officers or directors who have an equivalent position or title.

     7.  The management of the insurer shall document and make available upon examination of its financial condition the basis upon which its assertions are made, as required pursuant to subsection 6. Such basis may include its review, monitoring and testing of internal controls undertaken in the normal course of its activities.

     8.  The management of the insurer has 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.

     9.  The Management’s Report on Internal Control Over Financial Reporting and any documentation provided in support thereof during the course of a financial condition examination must be kept confidential by the Division.

     10.  As used in this section, “unremediated material weakness” has the meaning ascribed to it in the Statements of Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit, included in the AICPA Professional Standards, adopted by reference in NAC 680A.189.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.205  Exemption to be granted or denied by Commissioner; hearing. (NRS 679B.130, 680A.265, 680A.270)  Upon written application of an insurer or group of insurers, the Commissioner may grant an exemption from compliance with any or all provisions of NAC 680A.173 to 680A.211, inclusive, if the Commissioner finds, upon review of the application, that compliance with any or all of the provisions of NAC 680A.173 to 680A.211, inclusive, would constitute a financial or organizational hardship upon the insurer or group of insurers. An exemption may be granted at any time and from time to time for a specified period or periods. Within 10 days after a denial of an insurer’s written request for an exemption from any or all provisions of NAC 680A.173 to 680A.211, inclusive, the insurer may request in writing a hearing on its application for an exemption. The hearing must be held in accordance with the provisions of NAC 679B.161 to 679B.480, inclusive.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.207  Effective dates. (NRS 679B.130, 680A.265, 680A.270)

     1.  Domestic insurers retaining a qualified independent certified public accountant on December 31, 2009, shall comply with the provisions of NAC 680A.173 to 680A.211, inclusive, for the year ending December 31, 2009, and each year thereafter unless the Commissioner permits otherwise.

     2.  Domestic insurers not retaining a qualified independent certified public accountant on December 31, 2009, shall meet the following schedule for compliance unless the Commissioner permits otherwise:

     (a) As of December 31, 2009, file with the Commissioner an Audited Financial Report; and

     (b) For the year ending December 31, 2010, and each year thereafter, file with the Commissioner all reports and communication required by NAC 680A.173 to 680A.211, inclusive.

     3.  Foreign and alien insurers shall comply with the provisions of NAC 680A.173 to 680A.211, inclusive, for the year ending December 31, 2010, and each year thereafter, unless the Commissioner permits otherwise.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.209  Canadian and British insurers. (NRS 679B.130, 680A.265, 680A.270)

     1.  In the case of Canadian and British insurers, the annual Audited Financial Report is 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 an insurer domiciled in Canada or Great Britain, the letter required by NAC 680A.181 must state that the accountant is aware of the requirements relating to the annual Audited Financial Report filed with the Commissioner pursuant to NRS 680A.265 and the regulations adopted pursuant thereto and must affirm that the opinion expressed is in conformity with those requirements.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

      NAC 680A.211  Applicability. (NRS 679B.130, 680A.265, 680A.270)  If any section or portion of NAC 680A.173 to 680A.211, inclusive, or its applicability to any person or circumstance is held invalid by a court, the remainder of NAC 680A.173 to 680A.211, inclusive, or the applicability of NAC 680A.173 to 680A.211, inclusive, to other persons or circumstances shall not be affected.

     (Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009, eff. 1-1-2010)

DETERMINATION OF HAZARDOUS FINANCIAL CONDITION

      NAC 680A.220  Commissioner to determine if continued operation of insurer is hazardous; considerations for determination. (NRS 679B.130, 680A.205)

     1.  The Commissioner will consider the following to determine whether the continued operation of an insurer transacting the business of insurance in this State is hazardous to the general public or the policyholders or creditors of the insurer:

     (a) Adverse findings concerning the insurer’s financial condition or market conduct as reported or summarized in examination reports, audit reports and actuarial opinions, reports, summaries or memoranda which the Commissioner determines to be material.

     (b) Financial solvency analysis tools and information and reports concerning the insurer from the Insurance Regulatory Information System of the National Association of Insurance Commissioners.

     (c) Whether the insurer has made adequate provision in accordance with accepted actuarial standards of practice for the anticipated cash flows required by policies, contractual obligations and related expenses of the insurer. In making that determination, the Commissioner will consider the assets held by the insurer with respect to reserves and related actuarial items, including, without limitation, the investment earnings on such assets and the financial consideration anticipated to be received and retained under such policies and contracts.

     (d) If the insurer has reinsurance, the ability of the assuming reinsurer to perform and whether the insurer’s reinsurance program provides sufficient protection for the insurer’s remaining surplus after taking into account the insurer’s cash flow, the classes of insurance written by the insurer and the financial condition of the assuming reinsurer.

     (e) Whether the insurer’s operating loss in the most previous 12-month period, or such shorter period as the Commissioner deems appropriate, is greater than 50 percent of the insurer’s surplus which is in excess of the statutory minimum surplus required for that insurer pursuant to NRS 680A.120.

     (f) Whether the insurer’s operating loss, excluding net capital gain, in the most previous 12-month period, or such shorter period as the Commissioner deems appropriate, is greater than 20 percent of the insurer’s surplus which is in excess of the statutory minimum surplus required for that insurer pursuant to NRS 680A.120.

     (g) Whether any entity within the system of the insurance holding company, reinsurer or obligor of the insurer is insolvent, threatened with insolvency or delinquent in payment of its monetary or other obligations and, in the opinion of the Commissioner, such insolvency or delinquency may affect the solvency of the insurer.

     (h) Whether the contingent liabilities, pledges or guaranties of the insurer, either individually or collectively, involve a total amount which, in the opinion of the Commissioner, may affect the solvency of the insurer.

     (i) Whether any person who directly or indirectly controls the insurer is delinquent in the transmission to, or payment of, a net premium to the insurer.

     (j) The age and collectibility of the accounts receivable of the insurer.

     (k) Whether any person involved in the management of the insurer fails to possess and demonstrate the competence, fitness and reputation deemed necessary by the Commissioner to serve the insurer in such a position.

     (l) Whether the management of the insurer has failed to respond to any inquiry concerning the condition of the insurer, or has provided false or misleading information in response to such an inquiry.

     (m) Whether the insurer has failed to meet financial and holding company filing requirements, unless the insurer is excused from such filing requirements for a reason deemed sufficient by the Commissioner.

     (n) Whether the management of the insurer has:

          (1) Filed a false or misleading sworn financial statement with the Division or the insurance regulatory authority of any other state;

          (2) Released a false or misleading statement to a lending institution or the general public; or

          (3) Made a false or misleading entry, or has omitted an entry of a material amount, in the books of the insurer.

     (o) Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner.

     (p) Whether the insurer has experienced, or will likely experience in the foreseeable future, problems with its cash flow or liquidity.

     (q) Whether the insurer has established reserves that do not comply with the minimum standards prescribed by specific statute or regulation, statutory accounting practices, sound actuarial principles and actuarial standards of practice.

     (r) Whether the insurer persistently maintains inadequate reserves that results in an adverse effect on the general public or on the policyholders or creditors of the insurer.

     (s) Whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to ensure the ability of the insurer to meet its outstanding obligations as the obligations mature.

     (t) Any other finding determined by the Commissioner to be hazardous to the general public or to the policyholders or creditors of the insurer.

     2.  As used in this section, unless the context otherwise requires:

     (a) “Management of the insurer” includes officers, directors and any other person who directly or indirectly controls the operation of the insurer.

     (b) “Operating loss” includes, but is not limited to:

          (1) Net capital gain or loss;

          (2) Change in assets which are not allowed as assets in a determination of the financial condition of the insurer pursuant to NRS 681B.020; and

          (3) Cash dividends paid to shareholders.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R030-12, 9-14-2012)

      NAC 680A.222  Variables allowed in determination process. (NRS 679B.130, 680A.205)  To determine the financial condition of an insurer for the purposes of NAC 680A.220 to 680A.226, inclusive, the Commissioner may, if he or she deems it appropriate:

     1.  Disregard any credit or amount receivable resulting from the transactions of the insurer with a reinsurer which is insolvent, impaired or otherwise subject to a delinquency proceeding;

     2.  Consistent with the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners, which has been adopted by reference in NAC 679B.033, make an appropriate adjustment, including a disallowance, to the value of the insurer’s assets which are attributable to the insurer’s investments in or transactions with any parent, subsidiary or affiliate of the insurer;

     3.  Refuse to recognize the stated value of the accounts receivable of the insurer if the ability of the insurer to collect those accounts is highly speculative in view of the age of the account or the financial condition of the debtor; or

     4.  Increase the insurer’s liability in an amount equal to any contingent liability, pledge or guaranty not otherwise included in the annual statements or financial statements of the insurer if there is a substantial risk that the insurer will be called upon to meet the liability, pledge or guaranty undertaken within the following 12-month period.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R030-12, 9-14-2012)

      NAC 680A.224  Actions that may be taken by Commissioner if insurer determined to be in hazardous financial condition; exception. (NRS 679B.130, 680A.205)

     1.  If the Commissioner determines that the continued operation of an insurer licensed to transact the business of insurance in this State may be hazardous to the policyholders or creditors of the insurer or the general public, the Commissioner will, if appropriate:

     (a) Issue an order requiring the insurer to:

          (1) Purchase reinsurance to reduce the total amount of present or future liability for policy benefits.

          (2) Reduce, suspend or limit the volume of business being accepted or renewed by the insurer.

          (3) Reduce the insurer’s expenses relating to general insurance and commission by methods specified by the Commissioner.

          (4) Increase its capital and surplus.

          (5) Suspend or limit its declaration and payment of dividends to the stockholders or policyholders of the insurer.

          (6) File reports, in a form acceptable to the Commissioner, concerning the market value of the assets of the insurer.

          (7) Limit or withdraw from any of its investments, or discontinue any part of its practices relating to investments, to the extent deemed necessary by the Commissioner.

          (8) Document the adequacy of its premium rates in relation to the risks insured by the insurer.

          (9) File with the Commissioner, in addition to its regular annual statements, interim financial reports. The interim reports must be on the appropriate form adopted by the National Association of Insurance Commissioners, or in a format approved by the Commissioner.

          (10) Correct any corporate governance practices of the insurer which are deemed deficient by the Commissioner and adopt and use corporate governance practices acceptable to the Commissioner.

          (11) Provide a business plan to the Commissioner.

          (12) Unless prohibited by title 57 of NRS, adjust rates for a product, other than a contract for life insurance, written by the insurer that the Commissioner considers necessary to improve the financial condition of the insurer.

     (b) Take any other action deemed appropriate by the Commissioner.

     2.  The provisions of subsection 1 do not apply to a foreign insurer holding a certificate of authority to transact insurance in this State, except as otherwise provided in NRS 680A.190 to 680A.220, inclusive.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96; A by R030-12, 9-14-2012)

      NAC 680A.226  Hearing for review; notice. (NRS 679B.130, 680A.205)  An insurer who is subject to an order of the Commissioner issued pursuant to NAC 680A.224 may request a hearing to review the order. The notice of hearing will be served on the insurer in accordance with NRS 679B.320. The Commissioner will hold a hearing requested pursuant to this section privately, unless the insurer requests that the hearing be held as a public hearing.

     (Added to NAC by Comm’r of Insurance, eff. 5-23-96)

      NAC 680A.228  Termination or suspension of business: Rewriting insurance. (NRS 679B.130)  If a company voluntarily withdraws from doing business in Nevada, has its license suspended or revoked or requires replacement of insurance with other insurers, the policies of that company may be rewritten for the unexpired term by other admitted companies on a pro rata basis, at the original rate in effect when the policy was first written. This section does not apply to life and health insurance contracts.

     [Comm’r of Insurance, PC-3, eff. 9-23-72]—(Substituted in revision for NAC 680A.210)

MISCELLANEOUS

      NAC 680A.405  Countersignatures: Generally. (NRS 679B.130, 679B.136, 680A.300)  The Commissioner will apply the provisions of chapter 719 of NRS to any countersignature that is required by NRS 680A.300.

     (Added to NAC by Comm’r of Insurance by R115-02, eff. 3-18-2003)

      NAC 680A.410  Countersignatures: Property and casualty insurance. (NRS 679B.130, 680A.300)

     1.  Countersignature fees and commissions may be negotiated for services required of a countersigning producer of insurance appointed by an insurer.

     2.  A countersigning producer of insurance appointed by an insurer shall maintain complete records of countersignature transactions, including daily reports, correspondence, names of agents and brokers who wrote the policies, and evidence of fees and commissions charged.

     3.  A countersigning producer of insurance appointed by an insurer shall handle normal problems arising between agents and customers, and is answerable to the Division for complaints and problems relating to policies which he or she has countersigned.

     4.  All commissions on property and casualty insurance which was sold by an agent or broker who is not licensed in Nevada and which covers a risk located in Nevada must be paid to a countersigning producer of insurance appointed by the applicable insurer.

     [Comm’r of Insurance, PC-4, eff. 9-23-72]—(NAC A 5-27-92; R102-09, 1-28-2010)