Ala. Admin. Code r. 482-1-138-.04
Current through Register Vol. 43, No. 1, October 31, 2024
Section 482-1-138-.04 - Annual Audit(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: 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.Ala. Admin. Code r. 482-1-138-.04
New Rule: August 1, 2006; effective August 11, 2006. Filed with LRS August 1, 2006. Rule is not subject to the Alabama Administrative Procedure Act. Amended: August 11, 2009; effective August 24, 2009. Filed with LRS August 12, 2009. Rule is not subject to the Alabama Administrative Procedure Act.Amended by Alabama Administrative Monthly Volume XXXIV, Issue No. 10, July 29, 2016, eff. 7/31/2016.Amended by Alabama Administrative Monthly Volume XXXV, Issue No. 09, June 30, 2017, eff. 7/24/2017.Author: Commissioner of Insurance
Statutory Authority:Code of Ala. 1975, §§ 27-2-17; 27-7-43, 27-31B-17.