Sec. 12.1. (a) As used in this section, “independent”, with respect to a member of an audit committee, means that the member, other than in the member’s capacity as a member of the audit committee, the board of directors, or another board committee:

(1) does not accept a consulting fee, an advisory fee, or another compensatory fee from the domestic insurer or group of insurers; and

(2) is not an affiliate of the domestic insurer or group of insurers.

     (b) This section does not apply to any of the following:

(1) A foreign insurer or an alien insurer that possesses a certificate of authority.

(2) A domestic insurer that is a SOX compliant entity.

(3) A wholly-owned subsidiary of a SOX compliant entity.

     (c) The audit committee of a domestic insurer or group of insurers is directly responsible for the:

(1) appointment;

(2) compensation; and

(3) oversight of the work;

of the domestic insurer’s or group of insurers’ accountant, including resolution of disagreements between management and the accountant concerning financial reporting, for the purpose of preparing or issuing an annual audited financial report or related work under this chapter. Each accountant reports directly to the audit committee.

     (d) The audit committee of a domestic insurer or group of insurers is responsible for:

(1) oversight of the domestic insurer’s or group of insurers’ internal audit function; and

(2) granting the person that performs the internal audit function suitable authority and resources to fulfill the person’s responsibilities if required by section 12.3 of this chapter.

     (e) The following apply to the membership of an audit committee:

(1) Each member shall be:

(A) a member of the board of directors of the domestic insurer; or

(B) if the audit committee of the entity that controls a group of insurers serves as the audit committee of the domestic insurer or group of insurers, a member of the audit committee of the entity that controls the group of insurers.

(2) The percentage of independent members must meet the following minimum requirements:

(A) If the domestic insurer had direct written and assumed premiums during the immediately preceding calendar year of less than three hundred million dollars ($300,000,000), no minimum requirement applies.

(B) If the domestic insurer had direct written and assumed premiums during the immediately preceding calendar year of at least three hundred million dollars ($300,000,000) and less than five hundred million dollars ($500,000,000), at least fifty percent (50%) of the members must be independent members.

(C) If the domestic insurer had direct written and assumed premiums during the immediately preceding calendar year of at least five hundred million dollars ($500,000,000), at least seventy-five percent (75%) of the members must be independent members.

     (f) If:

(1) state or federal law requires that a board of directors of a domestic insurer or group of insurers include otherwise nonindependent members; and

(2) an otherwise nonindependent member is not an officer or employee of the domestic insurer, group of insurers, or an affiliate of the domestic insurer or group of insurers;

the nonindependent member may serve as a member of an audit committee and be considered to be independent for audit committee purposes.

     (g) If:

(1) a member of an audit committee of a domestic insurer ceases to be independent for reasons beyond the member’s reasonable control; and

(2) the domestic insurer notifies the department of the cessation of independence;

the member may continue to serve as an audit committee member until the next annual meeting of the domestic insurer or one (1) year after the date on which the member’s independence ceased, whichever occurs first.

     (h) The ultimate controlling person of a domestic insurer may designate the audit committee of the domestic insurer by providing written notice to each commissioner responsible for regulation of each affected insurer. The written notice must:

(1) be timely provided before the issuance of the annual audited financial report; and

(2) include a description of the basis for the designation.

     (i) A designation:

(1) under subsection (h) may be changed with written notice from the domestic insurer to the commissioner, including a description of the basis for the designation; and

(2) under subsection (h) or this subsection remains in effect unless rescinded or changed.

     (j) A domestic insurer’s audit committee shall require the accountant that performs an audit required by this chapter to report to the audit committee in accordance with the requirements of AICPA Statements on Auditing Standards (SAS) 61, Communication with Audit Committees, including the following:

(1) All significant accounting policies and material permitted practices.

(2) All:

(A) material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the domestic insurer; and

(B) ramifications of the use of the alternative disclosures and treatments.

(3) The treatment described in subdivision (2) that is preferred by the accountant.

(4) Any other material written communication between the accountant and the management of the domestic insurer, including any management letter or schedule of unadjusted differences.

     (k) If:

(1) a domestic insurer is a member of an insurance holding company system; and

(2) any substantial differences among insurers in the insurance holding company system are identified to the audit committee;

the reports required by subsection (j) may be provided to the audit committee on an aggregate basis for insurers in the holding company system.

     (l) If a domestic insurer has direct written and assumed premiums (excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program) of less than five hundred million dollars ($500,000,000), the domestic insurer may apply to the commissioner for a waiver from the audit committee requirements of this section based on hardship.

     (m) A domestic insurer that receives a waiver under subsection (l) shall file the waiver, with the domestic insurer’s annual statement filing, with the:

(1) commissioners of insurance in the states in which the domestic insurer is licensed or doing insurance business; and

(2) NAIC.

If another state has access to electronic filing with the NAIC, the domestic insurer shall file the waiver with the other state electronically in accordance with NAIC electronic filing specifications.

As added by P.L.146-2015, SEC.16. Amended by P.L.124-2018, SEC.9.