Section 3.21.775. Management's report of internal control over financial reporting.

	(a)  An insurer that is required to file an annual audited financial report, and that has annual direct written and assumed premium of $500,000,000 or more as reported in the last annual financial statement filed under AS 21.09.200(a), excluding premiums reinsured with the Federal Crop Insurance Corporation established under 7 U.S.C. 1501 - 1524 and the national flood insurance program established under 42 U.S.C. 4001 - 4129, shall prepare a report of the insurer's or group of insurers' internal control over financial reporting. The report must be filed with the report required in 3 AAC 21.740 on unremediated material weakness in internal control over financial reporting, and both reports must be as of the immediately preceding December 31.  
	(b)  Notwithstanding (a) of this section, the director may require an insurer to file the report of internal control over financial reporting if the insurer  
		(1) is in a level event as defined in AS 21.14.200; or  
		(2) meets one or more of the standards in 3 AAC 21.510 for impairment.  
	(c)  An insurer or group of insurers may file its or its parent's Section 404 report and an addendum to satisfy the requirements of this section, if the internal controls having a material impact on the preparation of the insurer's or group of insurers' annual audited financial report, including the items set out in 3 AAC 21.710(c)(2) - (6), were included in the scope of the Section 404 report. The addendum must be a positive statement by management that there are no material processes with respect to the preparation of the insurer's or group of insurers' audited statutory financial statements required under AS 21.09.200 and excluded from the Section 404 report. 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' audited statutory financial statements and those internal controls were not included in the scope of the Section 404 report, the insurer or group of insurers may file either  
		(1) a report under this section; or  
		(2) the Section 404 report and a report under this section for those internal controls that have a material impact on the preparation of the insurer's or group of insurers' audited statutory financial statements not covered by the Section 404 report.  
	(d)  The provisions of (c) of this section are available only to an insurer or a group of insurers that is  
		(1) directly subject to 15 U.S.C. 7262 (sec. 404 of the Sarbanes-Oxley Act of 2002 (SOX)) and 17 C.F.R. 229.308 (item 308 of Securities Exchange Commission Regulation S-K);  
		(2) part of a holding company system whose parent is directly subject to 15 U.S.C. 7262 and 17 C.F.R. 229.308;  
		(3) not directly subject to 15 U.S.C. 7262 and 17 C.F.R. 229.308 but is a SOX compliant entity; or  
		(4) a member of a holding company system whose parent is not directly subject to 15 U.S.C. 7262 and 17 C.F.R. 229.308 but is a SOX compliant entity.  
	(e)  The report on internal control over financial reporting must include  
		(1) a statement that management is responsible for establishing and maintaining adequate internal control over financial reporting;  
		(2) a statement that management has established internal control over financial reporting and an assertion to the best of 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 accounting practices prescribed, or otherwise permitted, by the insurance regulatory official of the insurer's or group of insurers' state of domicile;  
		(3) a statement that describes the approach or processes by which management evaluated the effectiveness of its internal control over financial reporting;  
		(4) a statement that describes the scope of work that is included and whether any internal controls were excluded;  
		(5) a disclosure of any unremediated material weaknesses in the internal control over financial reporting identified by management as of the immediately preceding December 31;  
		(6) a statement regarding the inherent limitations of internal control systems; and  
		(7) signatures of the chief executive officer and the chief financial officer or equivalent positions.  
	(f)  Management 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.  
	(g)  Management shall document and make available upon examination the basis upon which the assertions required in (e) of this section are made. Management may base its assertions, in part, upon its review, monitoring, and testing of internal controls undertaken in the normal course of its activities.  
	(h)  Management has discretion as to the nature of the internal control framework and the nature and extent of documentation used in order to make its assertion in a cost-effective manner. Management may include assembly of or reference to existing documentation.  
	(i)  If an insurer or group of insurers is not required to file a report from management of internal control over financial reporting because the total written and assumed premium is below the threshold set out in (a) of this section, and if the insurer or group of insurers subsequently becomes subject to the reporting requirements of this section, the insurer or group of insurers has two calendar years following the year the threshold is exceeded to comply with the reporting requirements of this section.  
	(j)  A foreign or alien insurer that is required to file in another state a report from management of internal control over financial reporting is exempt from filing the report in this state if the other state has substantially similar reporting requirements and the report is in compliance with the other state's reporting requirements. The foreign or alien insurer shall notify the director of the use of the exemption in this subsection and of the state insurance supervisory official who will receive the report. The foreign or alien insurer shall notify the director of a change in the use of the exemption or a change in the recipient of the report no later than 30 days after the change.  

Authorities

21.06.060;21.06.090;21.09.200

Notes

Authority

AS 21.06.060 AS 21.06.090 AS 21.09.200

History

Eff. 12/31/2010, Register 196