Section 031-235-13 - Requirements for Audit CommitteesA. The board of directors of every insurer required to file an annual audited financial report pursuant to this Rule shall appoint an Audit Committee for the purpose of overseeing its accounting and financial reporting processes of an insurer and audits of financial statements. If a separate Audit Committee is not designated by the insurer, the insurer's entire board of directors shall constitute the Audit Committee.B. The Audit Committee shall be directly responsible for the appointment, compensation, and oversight of the work of any accountant (including resolution of disagreements between management and the accountant regarding financial reporting) for the purpose of preparing or issuing the audited financial report or related work pursuant to this Rule. Each accountant shall report directly to the Audit Committee.C. If the insurer is required to maintain an internal audit function pursuant to Section 14, or otherwise maintains an internal audit function, the Audit Committee shall be responsible for overseeing the insurer's internal audit function and granting the person or persons performing the function suitable authority and resources to fulfill their responsibilities.D. Each member of the Audit Committee shall be a member of the board of directors of the insurer, or a member of the board of directors of a controlling entity that has elected pursuant to Subsection H to have its audit committee serve as the insurer's Audit Committee.E. The Audit Committee must include a minimum proportion of independent members in accordance with the following table. If the same Audit Committee is responsible for multiple insurers, their premium volume shall be combined. If the insurer is financially troubled, the Superintendent may impose enhanced independence requirements pursuant to applicable laws. Prior Calendar Year Direct Written and Non-Affiliate Assumed Premiums |
Under $300,000,000 | Between $300,000,000 and $500,000,000 | Over $500,000,000 |
No minimum requirements. However, insurers are encouraged to structure their Audit Committees so that at least three-fourths of the members are independent. | At least half the members shall be independent. Insurers are encouraged to structure their Audit Committees so that at least three-fourths of the members are independent. | At least three-fourths of the members shall be independent. |
F. In order to be considered independent for purposes of this Section, 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 affiliated person of the entity or any subsidiary thereof. However, if the insurer is required by law to have a board of directors with an insufficient number of independent members to meet the standards of Subsection E, the insurer shall appoint other directors to the Audit Committee, subject to the Superintendent's approval, who are not officers or employees of the insurer or any of its affiliates. In evaluating whether a director is independent within the meaning of this Section, the Superintendent shall consider the standards in Securities and Exchange Commission Final Rule No. 33-8220, Standards Relating to Listed Company Audit Committees (adopted April 9, 2003), which may be found online at http://www.sec.gov/rules/final/33-8220.htm.G. If a member of the Audit Committee ceases to be independent for reasons outside the member's reasonable control, that person, with notice by the responsible entity to the Superintendent, may remain an Audit Committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one year after the occurrence of the event that caused the member to be no longer independent.H. The controlling person of a group of affiliated insurers may designate its audit committee to serve as the Audit Committee for one or more of those the insurers for purposes of this Rule. A controlling person exercising this election shall provide written notice to each of the insurance supervisory officials of the affected insurers. Notification shall be made timely prior to the issuance of the statutory audit report and include a description of the basis for the election. The election can be changed through notice to the Superintendent by the insurer, which shall include a description of the basis for the change. The election shall remain in effect until rescinded.I.(1) The Audit Committee shall require the accountant that performs any audit required by this Rule for the insurer to submit a timely report to the Audit Committee in accordance with generally accepted auditing standards, including: (a) All significant accounting policies and material permitted practices;(b) All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the insurer, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and(c) Other material written communications between the accountant and the management of the insurer, such as any management letter or schedule of unadjusted differences.(2) If an insurer is a member of an insurance holding company system, the reports required by Paragraph 1 may be provided to the Audit Committee on an aggregate basis for insurers in the holding company system, provided that any substantial differences among insurers in the system are identified to the Audit Committee.J. An insurer with direct written and assumed premium less than $500,000,000, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, may make application to the Superintendent for a waiver from the requirements of this Section based upon hardship. An insurer granted relief shall file a copy of the Superintendent's approval with the NAIC, in an electronic format acceptable to the NAIC, and shall make such additional filings as may be required by any state in which the insurer is licensed.02-031 C.M.R. ch. 235, § 13