1.
(a)As used in this section,
"independent", with respect to a member of an audit committee, means
that the member, other than in the member's capacity as a member of
the audit committee, the board of directors, or another board
committee:
(1)does not accept a consulting fee, an advisory fee, or another
compensatory fee from the domestic insurer or group of insurers;
and
(2)is not an affiliate of the domestic insurer or group of insurers.
(b)This section does not apply to any of the following:
(1)A foreign insurer or an alien insurer that possesses a
certificate of authority.
(2)A domestic insurer that is a SOX compliant entity.
(3)A wholly-owned subsidiary of a SOX compliant entity.
(c)The audit committee of a domestic insurer or group of insurers
is directly responsible for the:
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1. (a) As used in this section,
"independent", with respect to a member of an audit committee, means
that the member, other than in the member's capacity as a member of
the audit committee, the board of directors, or another board
committee:
(1) does not accept a consulting fee, an advisory fee, or another
compensatory fee from the domestic insurer or group of insurers;
and
(2) is not an affiliate of the domestic insurer or group of insurers.
(b) This section does not apply to any of the following:
(1) A foreign insurer or an alien insurer that possesses a
certificate of authority.
(2) A domestic insurer that is a SOX compliant entity.
(3) A wholly-owned subsidiary of a SOX compliant entity.
(c) The audit committee of a domestic insurer or group of insurers
is directly responsible for the:
(1) appointment;
(2) compensation; and
(3) oversight of the work;
of the domestic insurer's or group of insurers' accountant, including
resolution of disagreements between management and the accountant
concerning financial reporting, for the purpose of preparing or issuing
an annual audited financial report or related work under this chapter.
Each accountant reports directly to the audit committee.
(d) The audit committee of a domestic insurer or group of insurers
is responsible for:
(1) oversight of the domestic insurer's or group of insurers'
internal audit function; and
(2) granting the person that performs the internal audit function
suitable authority and resources to fulfill the person's
responsibilities if required by section 12.3 of this chapter.
(e) The following apply to the membership of an audit committee:
(1) Each member shall be:
(A) a member of the board of directors of the domestic insurer;
or
(B) if the audit committee of the entity that controls a group of
insurers serves as the audit committee of the domestic insurer
or group of insurers, a member of the audit committee of the
entity that controls the group of insurers.
(2) The percentage of independent members must meet the
following minimum requirements:
(A) If the domestic insurer had direct written and assumed
premiums during the immediately preceding calendar year of
less than three hundred million dollars ($300,000,000), no
minimum requirement applies.
(B) If the domestic insurer had direct written and assumed
premiums during the immediately preceding calendar year of at
least three hundred million dollars ($300,000,000) and less than
five hundred million dollars ($500,000,000), at least fifty
percent (50%) of the members must be independent members.
(C) If the domestic insurer had direct written and assumed
premiums during the immediately preceding calendar year of at
least five hundred million dollars ($500,000,000), at least
seventy-five percent (75%) of the members must be
independent members.
(f) If:
(1) state or federal law requires that a board of directors of a
domestic insurer or group of insurers include otherwise
nonindependent members; and
(2) an otherwise nonindependent member is not an officer or
employee of the domestic insurer, group of insurers, or an affiliate
of the domestic insurer or group of insurers;
the nonindependent member may serve as a member of an audit
committee and be considered to be independent for audit committee
purposes.
(g) If:
(1) a member of an audit committee of a domestic insurer ceases
to be independent for reasons beyond the member's reasonable
control; and
(2) the domestic insurer notifies the department of the cessation
of independence;
the member may continue to serve as an audit committee member until
the next annual meeting of the domestic insurer or one (1) year after the
date on which the member's independence ceased, whichever occurs
first.
(h) The ultimate controlling person of a domestic insurer may
designate the audit committee of the domestic insurer by providing
written notice to each commissioner responsible for regulation of each
affected insurer. The written notice must:
(1) be timely provided before the issuance of the annual audited
financial report; and
(2) include a description of the basis for the designation.
(i) A designation:
(1) under subsection (h) may be changed with written notice from
the domestic insurer to the commissioner, including a description
of the basis for the designation; and
(2) under subsection (h) or this subsection remains in effect
unless rescinded or changed.
(j) A domestic insurer's audit committee shall require the accountant
that performs an audit required by this chapter to report to the audit
committee in accordance with the requirements of AICPA Statements
on Auditing Standards (SAS) 61, Communication with Audit
Committees, including the following:
(1) All significant accounting policies and material permitted
practices.
(2) All:
(A) material alternative treatments of financial information
within statutory accounting principles that have been discussed
with management officials of the domestic insurer; and
(B) ramifications of the use of the alternative disclosures and
treatments.
(3) The treatment described in subdivision (2) that is preferred by
the accountant.
(4) Any other material written communication between the
accountant and the management of the domestic insurer,
including any management letter or schedule of unadjusted
differences.
(k) If:
(1) a domestic insurer is a member of an insurance holding
company system; and
(2) any substantial differences among insurers in the insurance
holding company system are identified to the audit committee;
the reports required by subsection (j) may be provided to the audit
committee on an aggregate basis for insurers in the holding company
system.
(l) If a domestic insurer has direct written and assumed premiums
(excluding premiums reinsured with the Federal Crop Insurance
Corporation and Federal Flood Program) of less than five hundred
million dollars ($500,000,000), the domestic insurer may apply to the
commissioner for a waiver from the audit committee requirements of
this section based on hardship.
(m) A domestic insurer that receives a waiver under subsection (l)
shall file the waiver, with the domestic insurer's annual statement
filing, with the:
(1) commissioners of insurance in the states in which the
domestic insurer is licensed or doing insurance business; and
(2) NAIC.
If another state has access to electronic filing with the NAIC, the
domestic insurer shall file the waiver with the other state electronically
in accordance with NAIC electronic filing specifications.