(C) the number of jurisdictions in which the insurer
or HMO engages in business.
(2) On filing its annual statement, an insurer or HMO
for which the Commissioner has approved an exemption under paragraph
(1) of this subsection must file the approval with the states in which
it is doing business or is authorized to do business and with the
National Association of Insurance Commissioners. If a state other
than this state accepts electronic filing with the National Association
of Insurance Commissioners, the insurer or HMO must file the approval
in an electronic format acceptable to the National Association of
Insurance Commissioners.
(3) In providing services, the accountant may not:
(A) function in the role of management, audit the accountant's
own work, or serve in an advocacy role for the insurer or HMO; or
(B) directly or indirectly enter into an agreement
of indemnity or release from liability regarding the audit of the
insurer or HMO.
(4) The Commissioner may not recognize as qualified
or independent an accountant, or accept an annual audited financial
report that was prepared wholly or partly by an accountant, who provides
an insurer or HMO at the time of the audit:
(A) bookkeeping or other services related to the accounting
records or financial statements of the insurer or HMO;
(B) services related to financial information systems
design and implementation;
(C) appraisal or valuation services, fairness opinions,
or contribution-in-kind reports;
(D) actuarially oriented advisory services involving
the determination of amounts recorded in the financial statements;
(E) internal audit outsourcing services;
(F) management or human resources services;
(G) broker or dealer, investment adviser, or investment
banking services;
(H) legal services or other expert services unrelated
to the audit; or
(I) any other service that the Commissioner determines
to be inappropriate.
(5) Notwithstanding paragraph (4)(D) of this subsection,
an accountant may assist an insurer or HMO in understanding the methods,
assumptions, and inputs used in the determination of amounts recorded
in the financial statement if it is reasonable to believe that the
advisory service will not be the subject of audit procedures during
an audit of the insurer's or HMO's financial statements. An accountant's
actuary may also issue an actuarial opinion or certification on an
insurer's or HMO's reserves if:
(A) the accountant or the accountant's actuary has
not performed management functions or made any management decisions;
(B) the insurer or HMO has competent personnel, or
engages a third-party actuary, to estimate the reserves for which
management takes responsibility; and
(C) the accountant's actuary tests the reasonableness
of the reserves after the insurer's or HMO's management has determined
the amount of the reserves.
(6) An insurer or HMO that has direct written and assumed
premiums of less than $100 million in any calendar year may request
an exemption from the requirements of paragraph (4) of this subsection
by filing with the Commissioner a written statement explaining why
the insurer or HMO should be exempt. The Commissioner may grant the
exemption if the Commissioner finds that compliance with paragraph
(4) of this subsection would impose an undue financial or organizational
hardship on the insurer or HMO.
(7) An accountant who performs an audit may perform
non-audit services, including tax services, that are not described
in paragraph (4) of this subsection or that do not conflict with paragraph
(3) of this subsection, only if the activity is approved in advance
by the audit committee in accordance with paragraph (8) of this subsection.
(8) The audit committee must approve in advance all
auditing services and non-audit services that an accountant provides
to the insurer or HMO. The prior approval requirement is waived with
respect to non-audit services if the insurer or HMO is a SOX-compliant
entity or a direct or indirect wholly owned subsidiary of a SOX-compliant
entity or:
(A) the aggregate amount of all non-audit services
provided to the insurer or HMO is not more than five percent of the
total amount of fees paid by the insurer or HMO to its accountant
during the fiscal year in which the non-audit services are provided;
(B) the services were not recognized by the insurer
or HMO at the time of the engagement to be non-audit services; and
(C) the services are promptly brought to the attention
of the audit committee and approved before the completion of the audit
by the audit committee or by one or more members of the audit committee
who are the members of the board of directors to whom the audit committee
has delegated authority to grant approvals.
(9) The audit committee may delegate to one or more
designated members of the audit committee the authority to grant the
prior approval required by paragraph (7) of this subsection. The decisions
of any member to whom this authority is delegated shall be presented
to the full audit committee at each of its scheduled meetings.
(10) The Commissioner may not recognize an accountant
as qualified or independent for a particular insurer or HMO if a member
of the board, the president, chief executive officer, controller,
chief financial officer, chief accounting officer, or any individual
serving in an equivalent position for the insurer or HMO, was employed
by the accountant and participated in the audit of that insurer or
HMO during the one-year period preceding the date on which the most
current statutory opinion is due. This paragraph applies only to partners
and senior managers involved in the audit. An insurer or HMO may apply
to the Commissioner for an exemption from the requirements of this
paragraph on the basis of unusual circumstances.
(11) The Commissioner will not accept an audited financial
report prepared wholly or partly by an individual or firm who the
commissioner finds:
(A) has been convicted of fraud, bribery, a violation
of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §1961 et seq. ), or a state or federal criminal
offense involving dishonest conduct;
(B) has violated the insurance laws of this state with
respect to a report filed under Insurance Code Chapter 401, Subchapter
A, or this section;
(C) has demonstrated a pattern or practice of failing
to detect or disclose material information in reports filed under
Insurance Code Chapter 401, Subchapter A, or this section; or
(D) has directly or indirectly entered into an agreement
of indemnity or release of liability regarding an audit of an insurer.
(12) The insurer or HMO must file, with its annual
statement filing, the approval of an exemption granted under paragraph
(6) or (10) of this subsection with the states in which it does business
or is authorized to do business and with the National Association
of Insurance Commissioners. If a state, other than this state, in
which the insurer or HMO does business or is authorized to do business
accepts electronic filing, the insurer or HMO must file the approval
in an electronic format acceptable to the National Association of
Insurance Commissioners.
(i) Accountant's letter of qualifications. The audited
financial report required under Insurance Code §401.004 must
be accompanied by a letter, provided by the accountant who performed
the audit, that includes the representations and statements required
under Insurance Code §401.013, and a representation that the
accountant is in compliance with the requirements specified in subsection
(h) of this section.
(j) Communication of internal control matters noted
in audit.
(1) In addition to the audited financial report required
by Insurance Code Chapter 401, Subchapter A, and this section, each
insurer or HMO shall provide to the Commissioner a written communication
prepared by an accountant in accordance with the Professional Standards
of the American Institute of Certified Public Accountants that describes
any unremediated material weaknesses in its internal controls over
financial reporting noted during the audit. The insurer or HMO must
annually file with the Commissioner the communication required by
this subsection not later than the 60th day after the date the audited
financial report is filed. The communication must contain a description
of any unremediated material weaknesses, as defined by Statement on
Auditing Standards No. 112, "Communicating Internal Control Related
Matters Identified in an Audit," or a successor document, as of the
immediately preceding December 31, in the insurer's or HMO's internal
control over financial reporting that was noted by the accountant
during the course of the audit of the financial statements. The communication
must affirmatively state if unremediated material weaknesses were
not noted by the accountant.
Cont'd... |