| (8) Each member of the audit committee must be a member
of the board of directors of the insurer or HMO or, at the election
of the controlling person, a member of the board of directors of an
entity that controls the group of insurers or HMOs as provided under
paragraph (11) of this subsection and described under subsection (c)(3)
of this section.
(9) To be independent for purposes of this subsection,
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 affiliate of the entity
or an affiliate of any subsidiary of the entity. To the extent of
any conflict with a statute requiring an otherwise non-independent
board member to participate in the audit committee, the other statute
prevails and controls, and the member may participate in the audit
committee unless the member is an officer or employee of the insurer
or HMO or an affiliate of the insurer or HMO.
(10) Except as provided in paragraph (3) of this subsection,
if a member of the audit committee ceases to be independent for reasons
outside the member's reasonable control, the member may remain an
audit committee member of the responsible entity, if the responsible
entity gives notice to the Commissioner, until the earlier of:
(A) the next annual meeting of the responsible entity;
or
(B) the first anniversary of the occurrence of the
event that caused the member to be no longer independent.
(11) To exercise the election of the controlling person
to designate the audit committee under this section, the ultimate
controlling person must provide written notice of the affected insurers
or HMOs to the Commissioner. Notice must be made before the issuance
of the statutory audit report and must include a description of the
basis for the election. The election may be changed through a notice
to the Commissioner by the insurer or HMO, which must include a description
of the basis for the change. An election remains in effect until changed
by later election.
(12) The audit committee must require the accountant
who performs an audit required by Insurance Code Chapter 401, Subchapter
A, and this section to report to the audit committee in accordance
with the requirements of Statement on Auditing Standards No. 114,
"The Auditor's Communication With Those Charged With Governance,"
or a successor document, including:
(A) all significant accounting policies and material
permitted practices;
(B) all material alternative treatments of financial
information in statutory accounting principles that have been discussed
with the insurer's or HMO's management officials;
(C) ramifications of the use of the alternative disclosures
and treatments, if applicable, and the treatment preferred by the
accountant; and
(D) other material written communications between the
accountant and the management of the insurer or HMO, such as any management
letter or schedule of unadjusted differences.
(13) If an insurer or HMO is a member of an insurance
holding company system, the report required by paragraph (12) of this
subsection may be provided to the audit committee on an aggregate
basis for insurers or HMOs in the holding company system if any substantial
differences among insurers or HMOs in the system are identified to
the audit committee.
(l) Internal audit function requirements.
(1) An insurer or HMO is exempt from the requirements
of this subsection if:
(A) the insurer or HMO has annual direct written and
unaffiliated assumed premium, including international direct and assumed
premium but excluding premiums reinsured with the Federal Crop Insurance
Corporation and Federal Flood Program, less than $500 million; and
(B) the insurer or HMO is a member of a group of insurers
or HMOs, the group has annual direct written and unaffiliated assumed
premium including international direct and assumed premium, but excluding
premiums reinsured with the Federal Crop Insurance Corporation and
Federal Flood Program, less than $1 billion.
(2) An insurer or HMO or group of insurers or HMOs
subject to this subsection must establish an internal audit function
providing independent, objective, and reasonable assurance to the
audit committee and insurer or HMO management regarding the insurer's
or HMO's governance, risk management, and internal controls. This
assurance must be provided by performing general and specific audits,
reviews, and tests, and by employing other techniques deemed necessary
to protect assets, evaluate control effectiveness and efficiency,
and evaluate compliance with policies and regulations.
(3) In order to ensure that internal auditors remain
objective, the internal audit function must be organizationally independent.
Specifically, the internal audit function cannot defer ultimate judgment
on audit matters to others and must appoint an individual to head
the internal audit function who has direct and unrestricted access
to the board of directors. Organizational independence does not prevent
dual-reporting relationships.
(4) The head of the internal audit function must report
to the audit committee regularly but no less than annually on the
periodic audit plan, factors that may adversely impact the internal
audit function's independence or effectiveness, material findings
from completed audits, and the appropriateness of corrective actions
implemented by management as a result of audit findings.
(5) If an insurer or HMO is a member of an insurance
holding company system or included in a group of insurers or HMOs,
the insurer or HMO may satisfy the internal audit function requirements
set forth in this section at the ultimate controlling parent level,
an intermediate holding company level, or the individual legal entity
level.
(m) Prohibited conduct in connection with preparation
of Required Reports and documents.
(1) A director or officer of an insurer or HMO may
not, directly or indirectly:
(A) make or cause to be made a materially false or
misleading statement to an accountant in connection with an audit,
review, or communication required by Insurance Code Chapter 401, Subchapter
A, or this section; or
(B) omit to state, or cause another person to omit
to state, any material fact necessary in order to make statements
made, in light of the circumstances under which the statements were
made, not misleading to an accountant in connection with any audit,
review, or communication required under Insurance Code Chapter 401,
Subchapter A, or this section.
(2) An officer or director of an insurer or HMO, or
another person acting under the direction of an officer or director
of an insurer or HMO, may not directly or indirectly coerce, manipulate,
mislead, or fraudulently influence an accountant performing an audit
under Insurance Code Chapter 401, Subchapter A, or this section if
that person knew or should have known that the action, if successful,
could result in rendering the insurer's or HMO's financial statements
materially misleading. For purposes of this paragraph, actions that
could result in rendering the insurer's or HMO's financial statements
materially misleading include actions taken at any time with respect
to the professional engagement period to coerce, manipulate, mislead,
or fraudulently influence an accountant:
(A) to issue or reissue a report on an insurer's or
HMO's financial statements that is not warranted and would result
in material violations of statutory accounting principles prescribed
by the Commissioner, generally accepted auditing standards, or other
professional or regulatory standards;
(B) not to perform an audit, review, or other procedure
required by generally accepted auditing standards or other professional
standards;
(C) not to withdraw an issued report; or
(D) not to communicate matters to an insurer's or HMO's
audit committee.
(n) Report of internal control over financial reporting.
(1) Each insurer or HMO required to file an audited
financial report under Insurance Code Chapter 401, Subchapter A, and
this section that has annual direct written and assumed premiums,
excluding premiums reinsured with the Federal Crop Insurance Corporation
and the National Flood Insurance Program, of $500 million or more
must prepare a report of the insurer's or HMO's or group of insurers'
or HMOs' internal control over financial reporting. The report must
be filed with the Commissioner with the communication described by
subsection (j) of this section. The report of internal control over
financial reporting shall be filed with the Commissioner as of the
immediately preceding December 31.
Cont'd... |
