| (a) Purpose. The purpose of this section is to improve
the Texas Department of Insurance's surveillance of the financial
condition of insurers and HMOs by:
(1) specifying the requirements of an annual audit
by an accountant of the financial statements reporting the financial
condition and the results of operations of each insurer or HMO;
(2) requiring communication of internal control related
matters noted in an audit;
(3) requiring an insurer or HMO that is required to
file an annual audited financial report under Insurance Code Chapter
401, Subchapter A, to have an audit committee; and
(4) requiring certain insurer or HMO management to
report on internal control over financial reporting.
(b) Applicability.
(1) Except as otherwise specified in this section and
in Insurance Code Chapter 401, Subchapter A, this section applies
to insurers and HMOs and takes effect beginning with the annual reporting
period ending December 31, 2010, which period is reflected in reports
and communications required to be filed with the Commissioner during
calendar year 2011, and continues in effect each year thereafter.
(2) Subsection (h)(1) of this section, relating to
lead audit partner limitation, is in effect for audits of the year
beginning January 1, 2010, which audits are reflected in reports and
communications required to be filed with the Commissioner during calendar
year 2011, and continues in effect each year thereafter.
(3) Subsection (k) of this section, relating to audit
committee requirements, takes effect on September 1, 2010.
(4) Subsection (l) of this section, relating to internal
audit committee requirements, is applicable beginning January 1, 2021.
(c) Definitions. The following words and terms, when
used in this section, have the following meanings, unless the context
clearly indicates otherwise.
(1) Accountant--An independent certified public accountant
or accounting firm that meets the requirements of Insurance Code §401.011.
(2) Affiliate--Has the meaning assigned by Insurance
Code §823.003.
(3) Audit committee--A committee established by the
board of directors of an entity for the purpose of overseeing the
accounting and financial reporting processes of an insurer or HMO
or group of insurers or HMOs and audits of financial statements of
the insurer or HMO or group of insurers or HMOs. At the election of
the controlling person, the audit committee of an entity that controls
a group of insurers or HMOs may be the audit committee for one or
more of the controlled insurers or HMOs solely for the purposes of
this section. If an audit committee is not designated by the insurer
or HMO, the insurer's or HMO's entire board of directors constitutes
the audit committee.
(4) Audited financial report--The annual audit report
required by Insurance Code Chapter 401, Subchapter A.
(5) Group of insurers or HMOs--Those authorized insurers
or HMOs included in the reporting requirements of Insurance Code Chapter
823, or a set of insurers or HMOs as identified by management, for
the purpose of assessing the effectiveness of internal control over
financial reporting.
(6) Health maintenance organization (HMO)--A health
maintenance organization authorized to engage in business in this
state.
(7) Insurer--An insurer authorized to engage in business
in this state, including:
(A) a life, health, or accident insurance company;
(B) a fire and marine insurance company;
(C) a general casualty company;
(D) a title insurance company;
(E) a fraternal benefit society;
(F) a mutual life insurance company;
(G) a local mutual aid association;
(H) a statewide mutual assessment company;
(I) a mutual insurance company other than a mutual
life insurance company;
(J) a farm mutual insurance company;
(K) a county mutual insurance company;
(L) a Lloyd's plan;
(M) a reciprocal or interinsurance exchange;
(N) a group hospital service corporation; and
(O) a stipulated premium company.
(8) Internal control over financial reporting--A process
implemented by an entity's board of directors, management, and other
personnel designed to provide reasonable assurance regarding the reliability
of the entity's financial statements. The term includes policies and
procedures that:
(A) relate to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions
of assets;
(B) provide reasonable assurance that:
(i) transactions are recorded as necessary to permit
preparation of the financial statements; and
(ii) receipts and expenditures are made only in accordance
with authorizations of management and directors; and
(C) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition
of assets that could have a material effect on the financial statements.
(9) Management--The management of an insurer or HMO
or group of insurers or HMOs subject to this section.
(10) SEC--The United States Securities and Exchange
Commission.
(11) Section 404--Section 404, Sarbanes-Oxley Act of
2002 (15 U.S.C. §7262), and rules adopted under that section.
(12) Section 404 report--Management's report on internal
control over financial reporting as determined by the SEC and the
related attestation report of an accountant.
(13) SOX-compliant entity--An entity that is required
to comply with or voluntarily complies with:
(A) the preapproval requirements provided by 15 U.S.C. §78j-1(i);
(B) the audit committee independence requirements provided
by 15 U.S.C. §78j-1(m)(3); and
(C) the internal control over financial reporting requirements
provided by 15 U.S.C. §7262(b) and Item 308, SEC Regulation S-K.
(14) Subsidiary--Has the meaning assigned by Insurance
Code §823.003.
(d) Filing and extensions for filing of audited financial
report.
(1) Except as provided in paragraphs (2), (3), and
(4) of this subsection, an insurer or HMO that is required to have
an annual audit performed by an accountant and to file an audited
financial report with the Commissioner under Insurance Code Chapter
401, Subchapter A, shall file the audited financial report with the
Commissioner on or before June 1 for the preceding calendar year.
(2) Except as provided in paragraphs (3) and (4) of
this subsection, an insurer or HMO that, along with any affiliated
insurers or HMOs, is licensed in and does business only in Texas shall
file the audited financial report with the Commissioner on or before
June 30 for the preceding calendar year. This paragraph does not apply
to an insurer or HMO that is a member of a group comprised of one
or more insurers or HMOs authorized and actually doing the business
of insurance in another state that requires that an audited financial
report be filed on or before June 1 for the preceding calendar year.
(3) In accordance with Insurance Code §401.004(b),
the Commissioner may require an insurer or HMO to file an audited
financial report on a date that precedes the June 1 deadline in paragraph
(1) of this subsection or the June 30 deadline in paragraph (2) of
this subsection. The Commissioner must notify the insurer or HMO of
the filing date not later than the 90th day before that date.
(4) The Commissioner may grant an extension of the
filing date in accordance with Insurance Code §401.004(c). An
extension granted under Insurance Code §401.004(c), relating
to the filing date for an audited financial report, also applies to
the filing of management's report on internal control over financial
reporting required under subsection (n) of this section.
(5) An insurer or HMO required to file an annual audited
financial report under Insurance Code Chapter 401, Subchapter A, and
this section must designate a group of individuals to serve as its
audit committee. The audit committee of an entity that controls an
insurer or HMO may, at the election of the controlling person, be
the insurer's or HMO's audit committee for purposes of this section.
(e) Exemption for certain foreign or alien insurers
or HMOs.
(1) A foreign or alien insurer or HMO exempt under
Insurance Code §401.007(a) must file with the commissioner a
copy of:
(A) the audited financial report and the accountant's
letter of qualifications filed with the insurer's or HMO's state of
domicile at the same time these documents are filed with the state
of domicile;
Cont'd... |
