| (8) 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. (9) 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. (10) 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. (11) The audit committee shall require the accountant who performs an audit required by the 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. (12) If an insurer or HMO is a member of an insurance holding company system, the report required by paragraph (11) 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) 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 the 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 the 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 the 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. (m) Report of Internal Control over Financial Reporting. (1) Each insurer or HMO required to file an audited financial report under the 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 shall 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. (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 the 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 §11.810 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 the 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 the 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; Cont'd... |
