NAC680A.203. Conditions under which Management’s Report on Internal Control Over Financial Reporting must be filed.

     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)