(1) This
section does 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 rule.
Each accountant shall report directly to the audit committee.
(3) 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 Subsection (6) and Subsection
R590-254-3(3).
(4) To be considered independent for purposes
of this section, a member of the audit committee:
(a) may not, other than in the 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 of the
entity; or
(b) 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.
(5) 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.
(6) 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.
(a) Notification shall be made timely before
the issuance of the statutory audit report and include a description of the
basis for the election.
(b) The
election can be changed through notice to the commissioner by the insurer,
which shall include a description of the basis for the change.
(c) The election shall remain in effect for
perpetuity, until rescinded.
(7)
(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:
(i)
all significant accounting policies and material permitted practices;
(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
(iii) 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 Subsection (7)(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.
(8) The
proportion of independent audit committee members shall meet or exceed the
following criteria:
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Table
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$0 - $300,000,000
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No minimum requirements. See also Notes A and
B.
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Over $300,000,000 -$500,000,000
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Majority (50% or more) of members shall be
independent. See also Notes A and B.
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Over $500,000,000
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Super majority of members (75% or more) shall be
independent. See also Note A.
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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 an 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.
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(9)
(a) 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 apply to the
commissioner for a waiver from the requirements of Section
R590-254-14 based upon
hardship.
(b) The insurer shall
file, with its annual statement filing, the approval for relief from Section
R590-254-14 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.
