760 IAC 1-78-13 - Requirements for audit committee

Authority: IC 27-1-3-7

Affected: IC 27-1-3.5

Sec. 13.

(a) This section shall not apply to:

(1) foreign or alien insurers licensed in this state;

(2) an insurer that is a SOX compliant entity; or

(3) a direct or indirect wholly-owned subsidiary of a SOX compliant entity.

(b) The audit committee shall be directly responsible for the:

(1) appointment;

(2) compensation; and

(3) oversight of the work; of any accountant, including resolution of disagreements between management and the accountant regarding financial reporting, for the purpose of preparing or issuing the audited financial report or related work under this rule. Each accountant shall report directly to the audit committee.

(c) Each member of the audit committee shall be a member of the board of directors of:

(1) the insurer; or

(2) an entity elected under subsection (f) and section 2(4) of this rule.

(d) In order to be considered independent for purposes of this section, a member of the audit committee may not, other than in the member's capacity as a member of the audit committee, the board of directors, or any other board committee, accept any:

(1) consulting fee;

(2) advisory fee; or

(3) other compensatory fee; from the entity or be an affiliated person of the entity or any subsidiary thereof. However, if law requires board participation by otherwise nonindependent members, that law shall prevail and such members may participate in the audit committee and be designated as independent for audit committee purposes, unless they are an officer or employee of the insurer or one (1) of its affiliates.

(e) If a member of the audit committee ceases to be independent for reasons outside the member's reasonable control, that person, with notice by the responsible entity to the state, may remain an audit committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one (1) year from the occurrence of the event that caused the member to be no longer independent.

(f) To exercise the election of the controlling person to designate the audit committee for purposes of this rule, the ultimate controlling person shall provide written notice to the commissioners of the affected insurers. Notification shall:

(1) be made timely prior to the issuance of the statutory audit report; and

(2) include a description of the basis for the election.

The election can be changed through notice to the commissioner by the insurer, which shall include a description of the basis for the change. The election shall remain in effect for perpetuity, until rescinded.

(g) The audit committee shall require the accountant that performs for an insurer any audit required by this rule to timely report to the audit committee in accordance with the requirements of SAS 114, Communication with Audit Committees, or its replacement, including the following:

(1) All significant accounting policies and material permitted practices.

(2) All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the insurer, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant.

(3) Other material written communications between the accountant and the management of the insurer, such as any management letter or schedule of unadjusted differences.

If an insurer is a member of an insurance holding company system, the reports required by this subsection may be provided to the audit committee on an aggregate basis for insurers in the holding company system, provided that any substantial differences among insurers in the system are identified to the audit committee.

(h) The proportion of independent audit committee members shall meet or exceed the following criteria:

Prior Calendar Year Direct Written and Assumed Premiums
$0 - $300,000,000	Over $300,000,000 -$500,000,000	Over $500,000,000
No minimum requirements.	Majority (50% or more) of members shall be independent.	Supermajority of members (75% or more) shall be independent.

(i) An insurer with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than five hundred million dollars ($500,000,000) may make application to the commissioner for a waiver from the requirements set forth in this section based upon hardship. The insurer shall file, with its annual statement filing, the approval for relief from the requirements set forth in this section with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

Notes

760 IAC 1-78-13

Department of Insurance; 760 IAC 1-78-13; filed Oct 27, 2009, 2:52 p.m.: 20091125-IR-760090376FRA Readopted filed 11/20/2015, 9:25 a.m.: 20151216-IR-760150341RFA Readopted filed 11/15/2021, 8:32 a.m.: 20211215-IR-760210419RFA