This section shall not apply to foreign or alien Insurers
licensed in this state or an Insurer that is a SOX Compliant Entity or a direct
or indirect wholly-owned subsidiary of a SOX Compliant Entity.
014.01 The Audit committee shall be directly
responsible for the appointment, compensation and 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 pursuant to this Rule.
Each accountant shall report directly to the Audit committee.
014.02 The audit committee of an insurer or
group of insurers shall be responsible for overseeing the insurer's internal
audit function and granting the person or persons performing the function
suitable authority and resources to fulfill their responsibilities if required
by Section 015 of this Rule.
014.03
Each member of the Audit committee shall be a member of the board of directors
of the Insurer or a member of the board of directors of an entity elected
pursuant to Section 014.05 and Section 003.03.
014.04 In order to be considered independent
for purposes of this section, a member of the Audit committee may not, other
than in his or her capacity as a member of the Audit committee, the board of
directors, or any other board committee, accept any consulting, advisory or
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 non-independent 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 of its affiliates.
014.05 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
year from the occurrence of the event that caused the member to be no longer
independent.
014.06 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 Directors of the affected Insurers. Notification shall be made
timely prior to the issuance of the statutory audit report and include a
description of the basis for the election. The election can be changed through
notice to the Director by the Insurer, which shall include a description of the
basis for the change. The election shall remain in effect for perpetuity, until
rescinded.
014.07
014.07(a) 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
61, Communication with Audit Committees, or its replacement, including:
014.07(a)(i) All significant accounting
policies and material permitted practices;
014.07(a)(ii) 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; and
014.07(a)(iii) Other material written
communications between the accountant and the management of the Insurer, such
as any management letter or schedule of unadjusted differences.
014.07(b) If an Insurer
is a member of an insurance holding company system, the reports required by
Section 014.07(a) 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.
014.08 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. See also Note A and
B.
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Majority (50% or more) of members shall be
independent. See also Note A and B.
|
Supermajority of members (75% or more) shall be
independent. See also Note A.
|
Note A: The Director has authority afforded by state law to
require the entity's board to enact improvements to the independence of the
Audit committee membership if the Insurer is in a RBC action level event, meets
one or more of the standards of an Insurer deemed to be in hazardous financial
condition, or otherwise exhibits qualities of a troubled Insurer.
Note B: All Insurers with less than $500,000,000 in prior
year direct written and assumed premiums are encouraged to structure their
Audit committees with at least a supermajority of independent Audit committee
members.
Note C: Prior calendar year direct written and assumed
premiums shall be the combined total of direct premiums and assumed premiums
from non-affiliates for the reporting entities.
014.09 An Insurer with direct written and
assumed premium, excluding premiums reinsured with the Federal Crop Insurance
Corporation and Federal Flood Program, less than $500,000,000 may make
application to the Director for a waiver from the Section 014 requirements
based upon hardship. The Insurer shall file, with its annual statement filing,
the approval for relief from Section 014 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.
