(2) Notwithstanding the premium threshold under paragraph
(1) of this subsection, the Commissioner may require an insurer or
HMO to file the management's report of internal control over financial
reporting if the insurer or HMO is in any risk-based capital level
event or meets one or more of the standards of an insurer or HMO considered
to be in hazardous financial condition as described by or provided
in Insurance Code Chapter 404, 441, 822, 841, 843, or 884 or rules
adopted thereunder, including §7.402 of this title, Chapter 8
of this title, and §11.811 of this title.
(3) An insurer or HMO or a group of insurers or HMOs
may file the insurer's or HMO's or the insurer's or HMO's parent's
Section 404 report and an addendum if the insurer or HMO or group
of insurers or HMOs is:
(A) directly subject to Section 404;
(B) part of a holding company system whose parent is
directly subject to Section 404;
(C) not directly subject to Section 404 but is a SOX-compliant
entity; or
(D) a member of a holding company system whose parent
is not directly subject to Section 404 but is a SOX-compliant entity.
(4) A Section 404 report described by paragraph (3)
of this subsection must include those internal controls of the insurer
or HMO or group of insurers or HMOs that have a material impact on
the preparation of the insurer's or HMO's or group of insurers' or
HMOs' audited statutory financial statements, including those items
listed in Insurance Code §401.009(a)(3)(B) - (H) and (b). The
addendum must be a positive statement by management that there are
no material processes excluded from the Section 404 report with respect
to the preparation of the insurer's or HMO's or group of insurers'
or HMOs' audited statutory financial statements, including those items
specified in Insurance Code §401.009(a)(3)(B) - (H) and (b).
If there are internal controls of the insurer or HMO or group of insurers
or HMOs that have a material impact on the preparation of the insurer's
or HMO's or group of insurers' or HMOs' audited statutory financial
statements and those internal controls are not included in the Section
404 report, the insurer or HMO or group of insurers or HMOs may either
file:
(A) a report under this subsection; or
(B) the Section 404 report and a report under this
subsection for those internal controls that have a material impact
on the preparation of the insurer's or HMO's or group of insurers'
or HMOs' audited statutory financial statements not covered by the
Section 404 report.
(5) The insurer's or HMO's management report of internal
control over financial reporting must include:
(A) a statement that management is responsible for
establishing and maintaining adequate internal control over financial
reporting;
(B) a statement that management has established internal
control over financial reporting and an opinion concerning whether,
to the best of management's knowledge and belief, after diligent inquiry,
its internal control over financial reporting is effective to provide
reasonable assurance regarding the reliability of financial statements
in accordance with statutory accounting principles;
(C) a statement that briefly describes the approach
or processes by which management evaluates the effectiveness of its
internal control over financial reporting;
(D) a statement that briefly describes the scope of
work that is included and whether any internal controls were excluded;
(E) disclosure of any unremediated material weaknesses
in the internal control over financial reporting identified by management
as of the immediately preceding December 31;
(F) a statement regarding the inherent limitations
of internal control systems; and
(G) signatures of the chief executive officer and the
chief financial officer or an equivalent position or title.
(6) For purposes of paragraph (5)(E) of this subsection,
an insurer's or HMO's management may not conclude that the internal
control over financial reporting is effective to provide reasonable
assurance regarding the reliability of financial statements in accordance
with statutory accounting principles if there is one or more unremediated
material weaknesses in its internal control over financial reporting.
(7) Management must document, and make available upon
financial condition examination, the basis of the opinions required
by paragraph (5) of this subsection. Management may base opinions,
in part, on its review, monitoring, and testing of internal controls
undertaken in the normal course of its activities.
(8) Management has discretion about the nature of the
internal control framework used, and the nature and extent of the
documentation required by paragraph (7) of this subsection, in order
to form its opinions in a cost-effective manner and may include an
assembly of or reference to existing documentation.
(9) The management's report of internal control over
financial reporting required by this subsection and any supporting
documentation provided in the course of a financial condition examination
are considered examination information pursuant to Insurance Code §401.058
and information described by Insurance Code §401.201.
(o) Transition dates.
(1) An insurer or HMO or group of insurers or HMOs
whose audit committee as of September 1, 2010, is not subject to the
independence requirements of subsection (k) of this section because
the total written and assumed premium is below the threshold specified
in subsection (k)(2)(A) or (B) of this section and that later becomes
subject to one of the independence requirements because of changes
in the amount of written and assumed premium, has one year following
the year in which the written and assumed premium exceeds the threshold
amount to comply with the independence requirements. An insurer or
HMO that becomes subject to one of the independence requirements as
a result of a business combination must comply with the independence
requirements not later than the first anniversary of the date of the
acquisition or combination.
(2) An 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 for the reporting
period ending December 31, 2010, and that has not had total written
premium at the $500 million or more premium threshold amount in any
prior calendar year reporting period must comply with the reporting
requirements in subsection (n) of this section no later than two years
after the year in which the written premium exceeds the threshold
amount required to file a report.
(3) An insurer or HMO or group of insurers or HMOs
that is not required by subsection (n)(1) of this section to file
a report beginning with the reporting period ending December 31, 2010,
because the total written premium is below the threshold amount, and
that later becomes subject to the reporting requirements, has two
years after the year in which the written premium exceeds the threshold
amount required to file a report. An insurer or HMO acquired in a
business combination must comply with the reporting requirements not
later than the second anniversary of the date of the acquisition or
combination.
(4) An insurer or HMO or group of insurers or HMOs
that no longer qualifies for the exemption in subsection (l)(1) of
this section has one year after the year the threshold is exceeded
to comply with the requirements of subsection (l)(1) of this section.
(p) Severability. If any subsection or portion of a
subsection of this section is held to be invalid for any reason, all
valid parts are severable from the invalid parts and remain in effect.
If any subsection or portion of a subsection is held to be invalid
in one or more of its applications, the part remains in effect in
all valid applications that are severable from the invalid applications.
To this end, all provisions of this section are declared to be severable.
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Source Note: The provisions of this §7.88 adopted to be effective August 31, 2010, 35 TexReg 7833; amended to be effective November 25, 2020, 45 TexReg 8344; amended to be effective April 26, 2021, 46 TexReg 2823 |