NAC: CHAPTER 694C - CAPTIVE INSURERS

[Rev. 8/27/2018 12:30:18 PM]

[NAC-694C Revised Date: 8-18]

CHAPTER 694C - CAPTIVE INSURERS

GENERAL PROVISIONS

694C.010 Definitions.

694C.020 “Accountant,” “certified public accountant” and “independent certified public accountant” defined.

694C.030 “Commissioner” defined.

694C.080 “Work papers” defined.

694C.090 Adoption by reference and availability of certain publications; revision of publications after adoption.

694C.092 Periodic review of publications adopted by reference.

LICENSING

694C.100 Qualifying investigation or examination of applicant.

694C.110 Authority of Commissioner to establish review panel for applications.

ADMINISTRATION

694C.200 Annual and quarterly reports of financial condition; request for extension of filing date.

694C.210 Annual audit; request for extension of filing date; application for exemption.

694C.220 Independent certified public accountant: Report of retention by insurer; acknowledgment of applicable requirements.

694C.222 Criteria for recognition as qualified independent certified public accountant by Commissioner.

694C.224 Hearing to determine whether independent certified public accountant is qualified; determination that accountant is not qualified.

694C.226 Reporting of determination that insurer misstated its financial condition or does not meet minimum requirements for capital and surplus; procedure upon discovery of additional facts.

694C.228 Reporting of significant deficiency in insurer’s structure for internal control.

694C.230 Availability and maintenance of work papers of independent certified public accountant.

694C.235 Procedure upon dismissal or resignation of independent certified public accountant.

694C.240 Security deposit or letter of credit; return upon discontinuation of business.

694C.245 Requirements for material service provider contract.

694C.250 Reinsurance and excess insurance agreements.

694C.260 Notification of certain changes in operations or organizational structure.

694C.270 Prior approval required for material change in nature of business; filing of certain other changes in application information with Commissioner.

694C.280 Officers and directors.

694C.290 Conflict of interest policy: Adoption; contents; required disclosures.

694C.295 Reasonable and proper expenses incurred in examination conducted pursuant to NRS 694C.410.

MISCELLANEOUS PROVISIONS

694C.300 Acting as manager, broker or agent without authorization of Commissioner prohibited.

694C.310 Acquisition of control of or merger with captive insurer.

GENERAL PROVISIONS

NAC 694C.010 Definitions. (NRS 679B.130, 694C.170) As used in this chapter, unless the context otherwise requires, the words and terms defined in NAC 694C.020, 694C.030 and 694C.080 have the meanings ascribed to them in those sections.

(Supplied in codification; A by Comm’r of Insurance by R064-06, 9-18-2006)

NAC 694C.020 “Accountant,” “certified public accountant” and “independent certified public accountant” defined. (NRS 679B.130, 694C.170) “Accountant,” “certified public accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and with all states in which the accountant or accounting firm is licensed to practice.

(Added to NAC by Comm’r of Insurance by R064-06, eff. 9-18-2006)

NAC 694C.030 “Commissioner” defined. “Commissioner” means the Commissioner of Insurance.

(Supplied in codification)

NAC 694C.080 “Work papers” defined. (NRS 679B.130, 694C.170) “Work papers” includes, without limitation, schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of records of a captive insurer and any other documents prepared or obtained by an independent certified public accountant and his or her employees in the conduct of their examination of a captive insurer.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000)

NAC 694C.090 Adoption by reference and availability of certain publications; revision of publications after adoption. (NRS 679B.130, 694C.170) The Commissioner hereby adopts the following publications by reference:

1. The Property/Casualty Insurance Annual and Quarterly Statement Blanks (ASB-PU) and the Property/Casualty Annual and Quarterly Statement Instructions (ASI-PU), published by the National Association of Insurance Commissioners. A copy of these publications may be purchased from the National Association of Insurance Commissioners, 1100 Walnut Street, Suite 1500, Kansas City, Missouri 64106-2197, by telephone at (816) 783-8300, by electronic mail at [email protected] or at the Internet address http://www.naic.org//prod_serv_alpha_listing.htm#, at a cost of $225, plus $32 for shipping, for ASB-PU and $250, plus $32 for shipping, for ASI-PU.

2. The most recent edition of the AICPA Professional Standards, published by the American Institute of Certified Public Accountants. A copy of this publication may be obtained from the American Institute of Certified Public Accountants by telephone at (888) 777-7077 or at the Internet address http://www.aicpastore.com, at a cost of $179 for members of the AICPA or $219 for nonmembers or as an online subscription at a cost of $159 for members of the AICPA or $199 for nonmembers. If the publication adopted by reference pursuant to this subsection is revised, the Commissioner will review the revision to determine its suitability for this State. If the Commissioner determines that the revision is not suitable for this State, the Commissioner will hold a public hearing to review his or her determination and give notice of that hearing within 90 days after the date of the publication of the revision. If, after the hearing, the Commissioner does not revise his or her determination, the Commissioner will give notice that the revision is not suitable for this State within 90 days after the hearing. If the Commissioner does not give such notice, the revision becomes part of the publication adopted by reference pursuant to this subsection.

3. The FASB Accounting Standards Codification published by the Financial Accounting Standards Board. A copy of this publication may be obtained at the Internet address http://www.fasb.org or by telephone at (800) 748-0659 at a cost of $940 for the Professional View online subscription or $255 for the bound edition. The Basic View online subscription is available free of charge.

4. The Domestic Per Diem Rates, published by the General Services Administration. A copy of this publication may be obtained, free of charge, from the General Services Administration at the Internet address http://www.gsa.gov/perdiem.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R064-06, 9-18-2006; R069-07, 12-4-2007; R080-16, 11-2-2016; R089-17, 5-16-2018)

NAC 694C.092 Periodic review of publications adopted by reference. (NRS 679B.130, 694C.170) The Commissioner will periodically review:

1. The Property/Casualty Insurance Annual and Quarterly Statement Blanks (ASB-PU) and the Property/Casualty Annual and Quarterly Statement Instructions (ASI-PU), as adopted by reference in subsection 1 of NAC 694C.090;

2. The FASB Accounting Standards Codification, as adopted by reference in subsection 3 of NAC 694C.090; and

3. The Domestic Per Diem Rates, as adopted by reference in subsection 4 of NAC 694C.090,

Ê and determine within 30 days after the review whether any change made to a publication listed in subsection 1, 2 or 3 is appropriate for application in this State. If the Commissioner does not disapprove a change to an adopted publication within 30 days after the review, the change is deemed to be approved by the Commissioner.

(Added to NAC by Comm’r of Insurance by R069-07, eff. 12-4-2007; A by R080-16, 11-2-2016)

LICENSING

NAC 694C.100 Qualifying investigation or examination of applicant. (NRS 679B.130, 694C.170) The Commissioner may perform a qualifying investigation or examination of an applicant either before or after the applicant is issued a certificate of authority. Such an investigation or examination may consist of a general survey of the corporate records of the applicant, including:

1. The charter, bylaws and minute books of the applicant;

2. Verification of the principal place of business of the applicant;

3. A determination of the assets and liabilities of the applicant;

4. A review of the accounting systems and rules for underwriting of the applicant; and

5. A review of such other factors as the Commissioner deems necessary.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R064-06, 9-18-2006)

NAC 694C.110 Authority of Commissioner to establish review panel for applications. (NRS 679B.130, 694C.170, 694C.220) In contracting with outside resources, including attorneys, accountants and actuaries, for the review of the applications for licenses for captive insurers pursuant to NRS 694C.220, the Commissioner may establish a review panel from a pool of qualified members as determined by the Commissioner.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000)

ADMINISTRATION

NAC 694C.200 Annual and quarterly reports of financial condition; request for extension of filing date. (NRS 679B.130, 694C.170, 694C.390, 694C.400)

1. A report of financial condition filed by an association captive insurer, an agency captive insurer or a rental captive insurer pursuant to NRS 694C.400 must be verified by the oath of two executive officers of the captive insurer.

2. A captive insurer other than a pure captive insurer or a state-chartered risk retention group shall file with the Commissioner a report of its financial condition. The report must be:

(a) Prepared in accordance with generally accepted accounting principles in the United States and stated in United States dollars, and must contain the footnotes and opinions of the independent certified public accountant or other person who prepared the report; and

(b) Accompanied by a statement, prepared by the independent certified public accountant or other person who prepared the report certifying that all financial requirements established by law and the articles of incorporation, bylaws and the business plan of the captive insurer have been met.

3. In addition to any other statements and schedules which a captive insurer other than a pure captive insurer or a state-chartered risk retention group is required by law to file, a captive insurer other than a pure captive insurer or a state-chartered risk retention group shall submit to the Commissioner the following exhibits and schedules from the Property/Casualty Insurance Annual and Quarterly Statements Blanks, published by the National Association of Insurance Commissioners, which is adopted by reference in NAC 694C.090:

(a) Exhibit 1 - Analysis of Nonadmitted Assets and Related Items;

(b) Schedule A - Real Estate;

(d) Schedule BA - Other Long-Term Invested Assets;

(e) Schedule D - Bonds and Stocks;

(f) Schedule DA - Short-Term Investments; and

(g) Schedule P - Parts 1 through 4 - Analysis of Losses and Loss Expenses.

Ê The exhibits and schedules must be prepared in accordance with the Property/Casualty Annual and Quarterly Statement Instructions, published by the National Association of Insurance Commissioners, which is adopted by reference in NAC 694C.090.

4. A report of financial condition filed by a pure captive insurer pursuant to NRS 694C.400 must be verified by the oath of two executive officers of the pure captive insurer. The report must be on the form prescribed by the Commissioner known as “Captive Annual Statement: Pure.”

5. A state-chartered risk retention group shall file with the Commissioner an annual and quarterly statement in accordance with the provisions of NAC 680A.160. In addition to the information required by NAC 680A.160, the statement must include, without limitation:

(a) A reconciliation between the accounting principles identified in paragraph (a) of subsection 2 and the principles identified in NRS 680A.270, unless the statement is prepared in accordance with subparagraph (2) of paragraph (b) of subsection 1 of NRS 680A.270; and

(b) If an annual statement, a copy of the “Statement of Actuarial Opinion,” “Actuarial Opinion Summary” and “Actuarial Report” filed pursuant to NAC 681B.250 to 681B.290, inclusive.

6. Upon a showing of good cause by the captive insurer and subject to the provisions of NRS 694C.390 and 694C.400, the Commissioner may grant a reasonable extension of the filing date for the report of financial condition required by this section. Such a request for extension must be submitted to the Commissioner in writing not less than 10 days before the date on which the report of financial condition is due and must contain sufficient details to permit the Commissioner to make an informed decision with respect to the requested extension.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R080-16, 11-2-2016)

NAC 694C.210 Annual audit; request for extension of filing date; application for exemption. (NRS 679B.130, 694C.170, 694C.390, 694C.400)

1. Except as otherwise provided in subsection 2 or 7, a captive insurer shall have an annual audit by an independent certified public accountant who is authorized by the Commissioner to conduct the audit. The captive insurer shall file the audited financial report with the Commissioner on or before June 30 for the year ending on the immediately preceding December 31.

2. Unless exempted pursuant to subsection 7 or NAC 680A.172, 680A.199 or 680A.205, a state-chartered risk retention group shall have an annual audit pursuant to NAC 680A.172 to 680A.211, inclusive. Unless the Commissioner grants an extension pursuant to subsection 5 or NAC 680A.177, a state-chartered risk retention group shall file the audited financial report with the Commissioner on or before June 1 for the year ending on the immediately preceding December 31.

3. The Commissioner will deem the annual audit conducted pursuant to this section to be a part of the annual report of financial condition of the captive insurer which is filed pursuant to NRS 694C.400.

4. The annual audit required by this section must include:

(a) A statement, prepared by the independent certified public accountant who conducted the audit, certifying that all financial requirements established by law, the articles of incorporation, the bylaws and the business plan of the captive insurer have been met.

(b) The opinion of the independent certified public accountant who conducted the audit which states that the financial statements of the captive insurer were examined in accordance with generally accepted auditing standards, as determined by the American Institute of Certified Public Accountants and included in the publication AICPA Professional Standards, which is adopted by reference in NAC 694C.090. The opinion must:

(1) Cover all years presented in the audit;

(2) Be addressed to the captive insurer on stationery of the accountant; and

(3) Include the address of the accountant issuing the opinion, original manual signatures and the date on which the opinion was issued.

(1) The methods and procedures used in the securing of assets; and

(2) The reliability of the financial records of the captive insurer, including, without limitation, the controls for the system of authorization and approval, and the separation of duties.

(d) A letter from the independent certified public accountant which includes:

(1) A statement that the accountant is independent with respect to the captive insurer and that he or she conforms to the standards of his or her profession as set forth in the AICPA Professional Standards, published by the American Institute of Certified Public Accountants, and adopted by reference in NAC 694C.090, and the pronouncements of the Financial Accounting Standards Board;

(2) A general description of the background and experience of the staff of the accountant engaged in the audit, including the experience of the staff in auditing captive insurers and other insurance companies;

(3) A statement that the accountant understands that the audited annual report and his or her opinions thereon will be filed with the Commissioner pursuant to subsection 1;

(4) A statement that the accountant will comply with NAC 694C.230 and consents and agrees to make his or her work papers available for review by the Commissioner or a designee thereof; and

(5) A statement that the accountant is properly licensed by the appropriate state licensing authority and is a member in good standing of the American Institute of Certified Public Accountants.

(e) Financial statements, including:

(1) A balance sheet;

(2) A statement of gain or loss from operations;

(3) A statement of changes in financial position;

(4) A statement of changes in paid-up capital, gross paid-in contributed surplus and unassigned money or assets; and

(5) Notes to financial statements required by generally accepted accounting principles, or as required by any other comprehensive basis of accounting in use by the captive insurer and approved by the Commissioner, including:

(I) A reconciliation of differences, if any, between the audited financial report and the report filed with the Commissioner pursuant to NRS 694C.400, with a written description of the nature of these differences;

(II) A summary of ownership and relationships of the company and all affiliated corporations or companies insured by the captive insurer; and

(III) A narrative explanation of all material transactions and balances with the captive insurer.

(f) An annual actuarial certification of loss reserves and loss expense reserves which includes an opinion of the adequacy of the loss reserves and loss expense reserves of the captive insurer, in a format acceptable to the Commissioner. The person who certifies the adequacy of the reserves must be approved by the Commissioner and must be a Fellow of the Casualty Actuarial Society, a Fellow of the Society of Actuaries, a member in good standing of the American Academy of Actuaries or a person who has otherwise demonstrated competence in the evaluation of loss reserves to the Commissioner. The annual actuarial certification must be in such form as the Commissioner determines appropriate.

5. Upon a showing of good cause by the captive insurer and subject to the provisions of NRS 694C.390 and 694C.400, the Commissioner may grant a reasonable extension of the filing date for the annual audit required by this section. Such a request for extension must be submitted to the Commissioner in writing not less than 10 days before the date on which the audited financial report is due and must contain sufficient details to permit the Commissioner to make an informed decision with respect to the requested extension.

6. If an extension for the filing of the audited financial report is granted pursuant to subsection 5, the same extension will be deemed granted for the filing of the Management’s Report on Internal Control Over Financial Reporting.

7. Upon a showing of good cause by the captive insurer and subject to the provisions of NRS 694C.390 and 694C.400, the Commissioner may grant an exemption from compliance with any provisions of this section if he or she determines, upon review of an application for exemption that compliance with any or all provisions of this section would constitute a financial or organizational hardship on the captive insurer or that the captive insurer has shown other good cause why such an exemption should be granted. A request for an exemption must be submitted in writing not less than 30 days before the date on which the audited financial report is due and must contain sufficient details to permit the Commissioner to make an informed decision with respect to the requested exemption.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R080-16, 11-2-2016)

NAC 694C.220 Independent certified public accountant: Report of retention by insurer; acknowledgment of applicable requirements. (NRS 679B.130, 694C.170, 694C.400)

1. A captive insurer shall report to the Commissioner in writing the name and address of the independent certified public accountant whom the captive insurer has retained to conduct the annual audit required to be filed pursuant to NAC 694C.210 within 90 days after becoming subject to chapter 694C of NRS.

2. The captive insurer shall:

(a) Obtain a letter from the independent certified public accountant which states 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 which affirms that the accountant will express his or her opinion on the financial statements of the captive insurer in terms of their conformity to the accounting practices prescribed or otherwise permitted by NRS 694C.400, and the regulations adopted pursuant thereto, specifying such exceptions as he or she deems appropriate; and

(b) File a copy of the letter with the Commissioner.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R064-06, 9-18-2006)

NAC 694C.222 Criteria for recognition as qualified independent certified public accountant by Commissioner. (NRS 679B.130, 694C.170, 694C.400)

1. Except as otherwise provided in subsection 2, the Commissioner will recognize an independent certified public accountant as a qualified independent certified public accountant if the independent certified public accountant conforms to the standards contained in the Code of Professional Conduct of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct adopted by reference in NAC 628.500 and the regulations of the Nevada State Board of Accountancy, or other similar code.

2. The Commissioner will not recognize as a qualified independent certified public accountant an independent certified public accountant who:

(a) Is not in good standing with the American Institute of Certified Public Accountants and in all states in which the independent certified public accountant is licensed or certified to practice;

(b) Has either directly or indirectly entered into an agreement of indemnity or release from liability with respect to an audit of a captive insurer if the intent or effect of the agreement or release is to shift or limit in any manner the potential liability of the accountant for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from a knowing or other misrepresentation made by the captive insurer or its representatives;

(c) 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 other dishonest conduct or practices under federal or state law;

(d) Has been found to have violated any provision of title 57 of NRS, or any regulation adopted pursuant thereto, with respect to any previous annual audited financial report submitted pursuant to NRS 694C.400 and NAC 694C.200 and 694C.210; or

(e) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous annual audited financial reports filed pursuant to NRS 694C.400 and NAC 694C.200 and 694C.210.

(Added to NAC by Comm’r of Insurance by R064-06, eff. 9-18-2006)

NAC 694C.224 Hearing to determine whether independent certified public accountant is qualified; determination that accountant is not qualified. (NRS 679B.130, 694C.170, 694C.400)

1. The Commissioner will, if he or she deems it necessary, hold a hearing to determine whether an independent certified public accountant is qualified for the purposes of NRS 694C.400 and NAC 694C.200 and 694C.210. If, based on the evidence presented, the Commissioner determines that the accountant is not qualified, the Commissioner will:

(a) Rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report to be made pursuant to NRS 694C.400 and NAC 694C.200 and 694C.210, and require the captive insurer to replace the accountant with an independent certified public accountant who is so qualified; or

(b) Take any other action determined to be necessary by the Commissioner.

2. If the Commissioner determines, without a hearing, that the accountant is not qualified, the accountant may request a hearing pursuant to NRS 679B.310.

(Added to NAC by Comm’r of Insurance by R064-06, eff. 9-18-2006)

NAC 694C.226 Reporting of determination that insurer misstated its financial condition or does not meet minimum requirements for capital and surplus; procedure upon discovery of additional facts. (NRS 679B.130, 694C.170, 694C.400)

1. An independent certified public accountant of a captive insurer required to furnish an annual audited financial report shall report to the board of directors or audit committee of the captive insurer each determination by the accountant that the captive insurer:

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

(b) Does not, as of that date, meet the minimum requirements for capital and surplus as set forth in chapter 694C of NRS.

Ê The report must be in writing and provided to the captive insurer not later than 5 business days after the accountant makes such a determination.

2. A captive insurer who receives a report from its independent certified public accountant pursuant to this section shall, not later than 5 business days after the date on which it receives the report from the accountant:

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

(b) Provide the independent certified public accountant who made the report with evidence that the captive insurer has forwarded a copy of the report to the Commissioner. If the independent certified public accountant does not, within the 5-business-day period, receive evidence from the captive insurer that the captive insurer has forwarded a copy of the report to the Commissioner in accordance with this section, the independent certified public accountant shall file with the Commissioner a copy of its report within the next 5 business days.

3. If the independent certified public accountant, after the annual audited financial report reviewed by the accountant has been filed pursuant to NRS 694C.400 and NAC 694C.200 and 694C.210, becomes aware of any facts which affect his or her report, the accountant shall take such action as prescribed in Volume 1, Section AU 561 of the AICPA Professional Standards, which is adopted by reference in NAC 694C.090.

(Added to NAC by Comm’r of Insurance by R064-06, eff. 9-18-2006)

NAC 694C.228 Reporting of significant deficiency in insurer’s structure for internal control. (NRS 679B.130, 694C.170, 694C.400) If, following the audit of the financial statements of a captive insurer, an independent certified public accountant notes any significant deficiency in the captive insurer’s structure for internal control, the captive insurer shall, not later than 60 days after the date on which the annual audited financial report is filed with the Commissioner, file a written report which provides a description of the deficiency and of the remedial actions taken or proposed to correct the significant deficiency, if those actions are not otherwise described in the accountant’s report filed with the annual audited financial report.

(Added to NAC by Comm’r of Insurance by R064-06, eff. 9-18-2006)

NAC 694C.230 Availability and maintenance of work papers of independent certified public accountant. (NRS 679B.130, 694C.170, 694C.400)

1. A captive insurer shall ensure that its independent certified public accountant makes available for review by the Commissioner or a designee thereof the work papers of the accountant prepared in the conduct of the audit of the captive insurer. The captive insurer shall ensure that the accountant retains the audit work papers for not less than 5 years after the period reported upon in the audit.

2. A review by the Commissioner of the work papers of an independent certified public accountant is considered to be an examination of the captive insurer, and all work papers obtained during the course of such an examination are confidential. The captive insurer shall ensure that the independent certified public accountant provides to the Division of Insurance of the Department of Business and Industry photocopies of any of the work papers which the Division considers relevant. The Division may retain any copies of work papers provided to it pursuant to this subsection.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000)

NAC 694C.235 Procedure upon dismissal or resignation of independent certified public accountant. (NRS 679B.130, 694C.170, 694C.400)

1. If the independent certified public accountant who was the accountant for the most recent filing of the annual audited financial report of a captive insurer is dismissed or resigns, the captive insurer shall:

(a) Not later than 5 business days after the dismissal or resignation, notify the Commissioner of the dismissal or resignation; and

(b) Not later than 10 business days after notifying the Commissioner of the dismissal or resignation of the accountant, file with the Commissioner a separate letter which sets forth:

(1) Each disagreement which occurred during the 24 months immediately preceding the dismissal or resignation between the accountant and the captive insurer on any matter of accounting principles or practices, disclosure on a financial statement or the scope or procedure of the audit; and

(2) Which disagreements, if not resolved to the satisfaction of the accountant, caused him or her to make a reference to the subject matter of the disagreement in his or her opinion filed with the annual audited financial report of the captive insurer.

2. The disagreements required to be reported pursuant to this section include both those resolved to the former accountant’s satisfaction and those which have not been resolved to the former accountant’s satisfaction.

3. The captive insurer shall request in writing that the former accountant furnish a letter addressed to the captive insurer stating whether the accountant agrees with the statements contained in the captive insurer’s letter filed pursuant to subsection 1 and, if not, stating the reasons he or she does not agree.

4. Upon receipt of the accountant’s response letter, the captive insurer shall file with the Commissioner a copy of the response letter from the former accountant and any written response of the captive insurer to the accountant’s response letter.

5. For the purposes of this section, a disagreement between the captive insurer and its accountant is a disagreement which occurs between the captive insurer and the accountant at the decision-making level and includes, without limitation, a disagreement between the personnel of the captive insurer responsible for preparation of the financial statements of the captive insurer and the personnel of the independent certified public accountant responsible for rendering its opinion on those statements.

(Added to NAC by Comm’r of Insurance by R064-06, eff. 9-18-2006)

NAC 694C.240 Security deposit or letter of credit; return upon discontinuation of business. (NRS 679B.130, 694C.170)

1. If the Commissioner determines that the financial condition of a captive insurer warrants additional security, the Commissioner may require the captive insurer to:

(a) Deposit with the State Treasurer:

(1) Cash; or

(2) Securities which have been approved by the Commissioner; or

(b) Furnish the Commissioner a clean irrevocable letter of credit issued by a bank chartered by the State of Nevada, or a bank that is a member of the United States Federal Reserve System, on a form approved by the Commissioner. If there is a change to such a letter of credit, the captive insurer shall, as soon as practicable, file an updated copy of the letter of credit with the Commissioner.

2. A captive insurer may:

(a) Receive interest or dividends from the security deposit; or

(b) With the approval of the Commissioner, exchange the deposit for other deposits of equal value.

3. If the captive insurer discontinues business, the Commissioner will return the deposit to the captive insurer only after being satisfied that all obligations of the captive insurer have been discharged.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R080-16, 11-2-2016)

NAC 694C.245 Requirements for material service provider contract. (NRS 679B.130, 694C.170)

1. A material service provider contract between a captive insurer and a service provider:

(a) Must be for a period of not more than 5 years;

(b) Requires the approval of the majority of the captive insurer’s directors or subscribers’ advisory committee members for its initial term and for all renewals;

(d) If subsequently amended, must be refiled with the Division within 60 days after the effective date of the amended contract.

2. As used in this section:

(a) “Material service provider contract” means any contract between a captive insurer and a service provider under the terms of which the amount to be paid to the service provider by the captive insurer is greater than $15,000 during any one 12-month period.

(b) “Service provider” means a captive manager, auditor, accountant, actuary, investment adviser, attorney, managing general underwriter, managing general agent, attorney-in-fact or any other party responsible for underwriting, the determination of rates, the collection of premiums, adjusting and settling claims or the preparation of financial statements.

(Added to NAC by Comm’r of Insurance by R071-09, eff. 10-27-2009; A by R080-16, 11-2-2016)

NAC 694C.250 Reinsurance and excess insurance agreements. (NRS 679B.130, 694C.170)

1. Except as approved by the Commissioner, a captive insurer shall not:

(a) Enter into any agreement to cede reinsurance;

(b) Enter into any agreement to assume reinsurance; or

(c) Terminate an existing reinsurance treaty, except at its natural expiration as stated within the contract of reinsurance.

2. The effective date of any reinsurance agreement or modification of a reinsurance agreement entered into by a captive insurer may be before or after the date of the Commissioner’s approval, except that such effective date must not be before the date on which the captive insurer was initially formed as an insurer domiciled in this State. However, a captive insurer may not enter into or execute a reinsurance agreement before approval by the Commissioner.

3. The Commissioner may require a captive insurer to terminate any reinsurance transaction or prohibit a captive insurer from obtaining any or all reinsurance, if the Commissioner:

(a) Determines that the terms of a particular reinsurance agreement or agreements pose any material risk or disadvantage to the general public; or

(b) Determines that reinsurance is inappropriate when considering the captive insurer’s financial condition or the type, nature or volume of business written by the captive insurer.

4. Upon termination or modification of a reinsurance treaty or agreement held by a captive insurer, the Commissioner may order the captive insurer to cease writing any new business until:

(a) The Commissioner approves the modification of the existing reinsurance treaty or agreement, or any replacement reinsurance treaty or agreement obtained by the captive insurer; or

(b) The captive insurer ceases to utilize any or all reinsurance, if such cessation is determined to be appropriate by the Commissioner.

5. Reinsurance and excess insurance must be effected through a written agreement of reinsurance, or a written contract setting forth the terms, provisions and conditions governing the reinsurance.

6. Complete copies of all reinsurance treaties, agreements and contracts entered into by a captive insurer must be filed by the captive insurer with, and approved by, the Commissioner.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R080-16, 11-2-2016)

NAC 694C.260 Notification of certain changes in operations or organizational structure. (NRS 679B.130, 694C.170) If any material change occurs in the operations of a captive insurer or in the organizational structure within the captive insurer:

1. The manager, certified public accountant or actuary of the captive insurer shall notify the board of directors of the captive insurer of the material change within 60 days after the material change occurs; and

2. The captive insurer shall file a copy of the notice required by subsection 1 with the Commissioner not later than 60 days after the date such notice is provided to the board of directors.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R080-16, 11-2-2016)

NAC 694C.270 Prior approval required for material change in nature of business; filing of certain other changes in application information with Commissioner. (NRS 679B.130, 694C.170, 694C.240)

1. A captive insurer shall not, without the prior approval of the Commissioner, make any material change in the nature of its business from that stated in its plan of operation filed with the Commissioner.

2. Any change in any other information filed with the application must be filed with the Commissioner as soon as practicable, but does not require the prior approval of the Commissioner to make the change.

3. As used in this section, “material change” includes, without limitation:

(a) The entry into any agreement to cede reinsurance;

(b) The entry into any agreement to assume reinsurance;

(c) The termination of an existing reinsurance treaty, except at its natural expiration as stated within the contract of reinsurance;

(d) The writing of a new line of business;

(e) The exit from an existing line of business;

(f) Any change to limits of coverage written by the captive insurer; or

(g) The expansion into a new state of a state-chartered risk retention group.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R080-16, 11-2-2016)

NAC 694C.280 Officers and directors. (NRS 679B.130, 694C.170)

1. Within 30 days after any change in the executive officers and directors of a captive insurer, the captive insurer shall report the change to the Commissioner. The report must include a statement of the business and professional affiliations of the new executive officer or director. The new executive officer or director must meet the same standards that were indicated in the initial application of the captive insurer for that officer or director position.

2. A director, an officer or an employee of a captive insurer shall not, except on behalf of the captive insurer, accept or be the beneficiary of any fee, brokerage, gift or other emolument because of any investment, loan, deposit, purchase, sale, payment or exchange made by or for the captive insurer, but such a person may receive reasonable compensation for necessary services rendered to the captive insurer in his or her usual private, professional or business capacity. Prior to receiving compensation pursuant to this subsection, the person performing necessary services must obtain the consent of the board of directors or subscribers’ advisory committee for the performance of and compensation for such necessary services.

3. Any profit or gain received by or on behalf of any person in violation of this section is recoverable by the captive insurer.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R070-09, 10-27-2009)

NAC 694C.290 Conflict of interest policy: Adoption; contents; required disclosures. (NRS 679B.130, 694C.170)

1. A captive insurer chartered in this State shall adopt a conflict of interest policy for its attorneys-in-fact, trustees, managers, officers and directors. The policy must contain:

(a) A requirement that the attorney-in-fact, trustee, manager, officer or director must annually and within 60 days after any subsequent change disclose that he or she has no outside commitments, personal or otherwise, that would divert him or her from the duty to further the interests of the captive insurer that he or she represents;

(b) A clear expression that the attorney-in-fact, trustee, manager, officer or director has a duty of care to protect the interests of the captive insurer above those of any person including, but not limited to, the attorney-in-fact, trustee, manager, officer or director or any service provider; and

(c) A requirement that each attorney-in-fact, trustee, manager, officer or director must annually and within 60 days after any subsequent change provide a complete disclosure of each material relationship that he or she has with the captive insurer.

2. Each attorney-in-fact, trustee, manager, officer or director of a captive insurer shall file a disclosure of his or her conflicts of interest with the board of directors or subscribers’ advisory committee of the captive insurer annually and within 60 days after any subsequent change.

3. Nothing in this section shall be construed to prevent an attorney-in-fact, trustee, manager, officer or director of a captive insurer from being a director or officer in more than one insurance company or captive insurer.

4. As used in this section:

(a) “Material relationship” means any relationship in which an attorney-in-fact, trustee, manager, officer or director of a captive insurer, any member of such a person’s immediate family or any business with which such a person is affiliated receives compensation or payment of any other items of value from the captive insurer or a consultant or service provider to the captive insurer of an amount greater than $15,000 within any one 12-month period.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000; A by R071-09, 10-27-2009; R080-16, 11-2-2016)

NAC 694C.295 Reasonable and proper expenses incurred in examination conducted pursuant to NRS 694C.410. (NRS 679B.130, 694C.170, 694C.410) Reasonable and proper expenses incurred in an examination conducted pursuant to NRS 694C.410 may include, without limitation:

1. For a financial examiner or market conduct examiner, a daily salary as defined in the Financial Condition Examiners Handbook, which is adopted by reference in NAC 679B.033, or an hourly rate based upon the rate established in the contract approved by the State Board of Examiners.

2. For expert assistants, a daily salary or an hourly rate based upon the rate established in the contract approved by the State Board of Examiners.

3. The maximum per diem rate for the location of the examination established by the Administrator of General Services in the Federal Trade Regulation System of the General Services Administration, 41 C.F.R. Chapters 300 to 304, inclusive, and set forth in Domestic Per Diem Rates, which is adopted by reference in NAC 694C.090.

4. Expenses for transportation, including, without limitation, the cost of airfare, rail fare, taxicab fare and automobile rental and the reimbursement of any personal automobile expenses necessary to reach the location of the examination. The calculation of expenses for transportation may include expenses for transportation incurred by virtue of the length of time necessary to complete the examination.

5. Upon approval of the Commissioner, miscellaneous expenses incurred by the examiner and assistants while performing an examination. Miscellaneous expenses may include, without limitation, expenses for telephone calls, facsimile transmissions and postal charges relating to the examination.

6. An administrative charge, expressed as a percentage of the daily salary or hourly rate of the examiner or assistant, as provided in subsections 1 and 2 and as provided in the division budget approved by the Nevada Legislature.

(Added to NAC by Comm’r of Insurance by R069-07, eff. 12-4-2007; A by R080-16, 11-2-2016)

MISCELLANEOUS PROVISIONS

NAC 694C.300 Acting as manager, broker or agent without authorization of Commissioner prohibited. (NRS 679B.130, 694C.170) A person shall not act as a manager, a broker or an agent in this State for a captive insurer without authorization of the Commissioner. An application for authorization to act as a manager, a broker or an agent must be made to the Commissioner on a form prescribed by the Commissioner.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000)

NAC 694C.310 Acquisition of control of or merger with captive insurer. (NRS 679B.130, 694C.170)

1. A person other than an issuer shall not:

(a) Make a tender offer for, make a request or invitation for tenders of, or enter into any agreement to exchange securities for, any voting security of a domestic captive insurer; or

(b) Seek to acquire, or acquire in the open market or otherwise, any voting security of a domestic captive insurer,

Ê if, after the consummation thereof, the person would, directly or indirectly, or by conversion or exercise of any right acquired, be in control of the captive insurer.

2. A person shall not enter into an agreement to merge with, or otherwise acquire control of, a domestic captive insurer without the prior written approval of the Commissioner.

3. In considering an application for the acquisition of control or merger with a domestic captive insurer, the Commissioner will consider all the facts and circumstances surrounding the application as well as the criteria for the establishment of a captive insurer set forth in this chapter and chapter 694C of NRS.

(Added to NAC by Comm’r of Insurance by R125-99, eff. 1-27-2000)