Current through Register Vol. 42, No. 5, February 29, 2024
(1) All
companies shall have an annual audit by an independent certified public
accountant, authorized by the commissioner and shall file such audited
financial report with the commissioner on or before June 30 for the year ending
December 31 immediately preceding. The annual audit report shall be considered
part of the company's annual report of financial condition except with respect
to the date by which it must be filed with the commissioner.
(2) The annual audit shall consist of the
following:
(a) Opinion of Independent
Certified Public Accountant. Financial statements furnished pursuant to this
section shall be examined by independent certified public accountants in
accordance with generally accepted auditing standards as determined by the
American Institute of Certified Public Accountants. The opinion of the
independent certified public accountant shall cover all years presented. The
opinion shall be addressed to the company on stationery of the accountant
showing the address of issuance, shall bear original manual signatures and
shall be dated.
(b) Report of
Evaluation of Internal Controls. This report shall include an evaluation of the
internal controls of the company relating to the methods and procedures used in
the securing of assets and the reliability of the financial records, including
but not limited to such controls as the system of authorization and approval
and the separation of duties. The review shall be conducted in accordance with
generally accepted auditing standards and the report filed with the
commissioner.
(c) Accountant's
Letter. The accountant shall furnish the company, for inclusion in the filing
of the audited annual report, a letter stating:
1. That he or she is independent with respect
to the company and conforms to the standards of his profession as contained in
the Code of Professional Ethics and pronouncements of the American Institute of
Certified Public Accountants and pronouncements of the Financial Accounting
Standards Board.
2. The general
background and experience of the staff engaged in audit including the
experience in auditing captives or other insurance companies.
3. That the accountant understands that the
audited annual report and his or her opinions thereon will be filed in
compliance with this chapter with the Department of Insurance.
4. That the accountant consents to the
requirements of Rule
482-1-138-.07
and that the accountant consents and agrees to make available for review by the
commissioner, his or her designee or appointed agent, the work papers as
defined in Rule
482-1-138-.07.
5. That the accountant is properly licensed
by an appropriate state licensing authority and that he or she is a member in
good standing in the American Institute of Certified Public
Accountants.
(d)
Financial Statements. Statements required shall be as follows:
1. Balance sheet.
2. Statement of gain or loss from
operations.
3. Statement of changes
in financial position.
4. Statement
of changes in capital paid up, gross paid in and contributed surplus and
unassigned funds (surplus).
5.
Notes to financial statements. The notes to financial statements shall be those
required by generally accepted accounting principles, and shall include:
(i) A reconciliation of differences, if any,
between the audited financial report and the statement or form filed with the
commissioner.
(ii) A summary of
ownership and relationship of the company and all affiliated corporations or
companies insured by the captive.
(iii) A narrative explanation of all material
transactions and balances with the company.
(e) Certification of Loss Reserves and Loss
Expense Reserves. The annual audit shall include an opinion as to the adequacy
of the company's loss reserves and loss expense reserves. The individual who
certifies as to the adequacy of reserves shall be approved by the commissioner
and shall be a Fellow of the Casualty Actuarial Society, a member in good
standing of the American Academy of Actuaries, or an individual who has
demonstrated his or her competence in loss reserve evaluation to the
commissioner. Certification shall be in such form as the commissioner deems
appropriate.
(3) A
consolidated financial statement is not acceptable for captive insurance
companies.
(4) Captives, with the
exception of captive risk retention groups, having direct premiums written of
less than $2,200,000 in any calendar year and less than 1,000 policyholders or
certificate holders at the end of the calendar year or assumed premiums
pursuant to contracts and/or treaties of reinsurance of $2,200,000 or less may
make written application to the Commissioner to be exempt from having an annual
audit by a certified public accountant. Exemptions granted pursuant to this
chapter must be renewed annually and in no way prohibit, preclude, or in any
way limit the Commissioner from ordering or conducting or performing
examinations of captives pursuant to the authority granted in Section
27-31B-10,
Code of Ala. 1975.
(5) Upon written application of any captive
risk retention group, the Commissioner may grant an exemption from the
requirement to file an annual audit by certified public accountant if the
Commissioner finds, upon review of the application, that compliance with this
requirement would constitute a financial or organizational hardship on the
captive risk retention group. The approval of the request for exemption from
filing an annual audit will not negate the requirement to obtain a
certification of loss reserves and loss expense reserves. The exemption may be
granted at any time and from time to time for a specified period or periods.
Within ten (10) days from a denial of an application for exemption, the captive
risk retention group may file a written request for a hearing on the denial.
The hearing will be held in accordance with Chapter 482-1-065.
