(1) This Rule 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.
(2) 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 Chapter. Each accountant shall report directly
to the audit committee.
(3) 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 Rule
0780-01-65-.16
of this Chapter.
(4) 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
Paragraph (7) of this Rule and Rule
0780-01-65-.04(3).
(5) In order to be considered independent for
purposes of this Rule, 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.
(6) 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.
(7) To exercise the
election of the controlling person to designate the audit committee for
purposes of this Chapter, the ultimate controlling person shall provide written
notice to the commissioners 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 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.
(8)
(a) The
audit committee shall require the
accountant that performs for an
insurer any audit required by this Chapter to
timely report to the
audit committee in accordance with the requirements of SAS
61,
Communication with Audit Committees, or its replacement,
including:
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; and
3. Other material
written communications between the accountant and the management of the
insurer, such as any management letter or schedule of unadjusted
differences.
(b) If an
insurer is a member of an insurance holding company system, the reports
required by Paragraph (8)(a) of this Rule 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.
(9) 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.
|
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 commissioner 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 risk-based capital (RBC)
action level event, as described in Title 56, Chapter 46 of the Tennessee Code
Annotated, 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 five hundred million
dollars ($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.
(10) 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 this
Rule's requirements based upon hardship. The insurer shall file, with its
annual statement filing, the approval for relief from this Rule 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.
