| (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.
(2) The insurer or HMO shall also provide a description
of remedial actions taken or proposed to be taken to correct unremediated
material weaknesses, if the actions are not described in the accountant's
communication.
(k) Requirements for audit committees.
(1) This subsection does not apply to the following:
(A) a foreign or alien insurer or HMO;
(B) an insurer or HMO that is a SOX-compliant entity;
(C) an insurer or HMO that is a direct or indirect
wholly owned subsidiary of a SOX-compliant entity; or
(D) a non-stock insurer that is under the direct or
indirect control of a SOX-compliant entity, including pursuant to
the terms of an exclusive management contract.
(2) Except as provided in paragraphs (1) and (3) of
this subsection, an insurer or HMO to which Insurance Code Chapter
401, Subchapter A, applies must establish an audit committee conforming
to the following criteria:
(A) an insurer or HMO with over $500 million in direct
written and assumed premiums for the preceding calendar year shall
establish an audit committee with an independent membership of at
least 75 percent;
(B) an insurer or HMO with $300 million to $500 million
in direct written and assumed premiums for the preceding calendar
year shall establish an audit committee with an independent membership
of at least 50 percent; and
(C) except as provided in paragraph (3) of this subsection,
an insurer with less than $300 million in direct and assumed premiums
for the preceding calendar year is not required to comply with the
independence requirements in this subsection for its audit committee.
(3) Notwithstanding subsection (k)(1) and (10) of this
section, the Commissioner may require the insurer's or HMO's board
to enact improvements to the independence of the audit committee membership
if the insurer or HMO:
(A) is in a risk-based capital action level event,
as described by or provided in Insurance Code Chapters 822, 841, 843,
or 884 or rules adopted thereunder, including §7.402 of this
title (relating to Risk-Based Capital and Surplus Requirements for
Insurers and HMOs);
(B) 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, or 843 or rules
adopted thereunder, including Chapter 8 of this title (relating to
Hazardous Condition) and §11.811 of this title (relating to Action
under Insurance Code §843.157 and Insurance Code §843.461);
or
(C) otherwise exhibits qualities of a troubled insurer
or HMO.
(4) An insurer or HMO with direct written and assumed
premiums, excluding premiums reinsured with the Federal Crop Insurance
Corporation and the National Flood Insurance Program, of less than
$500 million may apply to the Commissioner for a waiver from the requirements
of paragraphs (1), (2), (5), (6) and (8) - (13) of this subsection
based on hardship. The insurer or HMO shall file, with its annual
statement filing, the approval of a waiver under this paragraph 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 accepts electronic filing, the insurer
or HMO shall file the approval in an electronic format acceptable
to the National Association of Insurance Commissioners.
(5) In this subsection, direct written and assumed
premiums for the preceding calendar year must be the combined total
of direct premiums and assumed premiums from non-affiliates for the
reporting entities.
(6) The audit committee is directly responsible for
the appointment, compensation, and oversight of the work of any accountant,
including the resolution of disagreements between the management of
the insurer or HMO and the accountant regarding financial reporting,
for the purpose of preparing or issuing the audited financial report
or related work under Insurance Code Chapter 401, Subchapter A, and
this section. Each accountant shall report directly to the audit committee.
(7) The audit committee of an insurer or HMO or group
of insurers or HMOs must be responsible for overseeing the insurer's
or HMO's internal audit function and granting the person or persons
performing the function suitable authority and resources to fulfill
their responsibilities if required by subsection (l) of this section,
relating to internal audit function requirements.
Cont'd... |
