Requirements for audit committees

(a) This section shall not apply to foreign or alien insurers licensed in this state or an insurer that is a SOX compliant entity or a direct or indirect wholly-owned subsidiary of a SOX compliant entity. (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 section. Each accountant shall report directly to the audit committee. (c) 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 an entity elected pursuant to subsection (e) of this section and Section 38a-54-2(c) of the Regulations of Connecticut State Agencies. (d) 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 law requires board participation by otherwise non-independent members, that law shall prevail and such members may participate in the audit committee and be designated as independent for audit committee purposes, unless they are an officer or employee of the insurer or one of its affiliates. (e) If a member of the audit committee ceases to be independent for reasons outside the member’s reasonable control, such member, with notice by the responsible entity to the Commissioner, 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 from the occurrence of the event that caused the member to be no longer independent. (f) To exercise the election of the controlling person to designate the audit committee for purposes of this section, the ultimate controlling person shall provide written notice to the commissioners of the states in which the affected insurers are licensed in or do business in. Timely notification shall be made prior to the issuance of the report of the statutory audit opinion and include a description of the basis for the election. The election may be changed through notice to the Commissioner by the insurer, which shall include a description of the basis for the change. The election shall remain in effect, until rescinded. (g) (1) The audit committee shall require the accountant that performs for an insurer any audit required by this section to timely report to the audit committee in accordance with the requirements of Statement on Auditing Standards 61, Communication with Audit Committees, or its replacement, 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 subdivision (1) of this subsection 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. (h) The proportion of independent audit committee members shall meet or exceed the following criteria; Prior Calendar Year Direct Written and Assumed Premiums $0 - $300,000,000 Over $300,000,000 - $500,000,000 Over $500,000,000 No minimum requirements. See also Note A, B and C. Majority (50% or more) of members shall be independent. See also Note A, B and C. Supermajority of members (75% or more) shall be independent. See also Note A and C. Note A: As provided in Sections 38a-8 and 38a-72 of the Connecticut General Statutes, the Commissioner shall require the entity’s board to enact improvements to the independence of the audit committee membership if the insurer is in a risk-based capital action level event, meets one or more of the standards of an insurer deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled insurer. Note B: All insurers with less than $500,000,000 in prior year direct written and assumed premiums are encouraged to structure their audit committees with at least a supermajority of independent audit committee members. Note C: Prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from non-affiliates for the reporting entities. (i) An insurer with direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, of less than $500,000,000 may make written application to the Commissioner for a waiver from the requirements of this section based upon hardship. The insurer shall file, with its annual statement filing, any approval for relief granted by the Commissioner from this section with the states that it is licensed in or doing business in and the NAIC. If the non-domestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC. (j) The requirements of this section shall be effective January 1, 2010. An insurer or group of insurers that is not required to have independent audit committee members or only a majority of independent audit committee members, as opposed to a supermajority, because the total written and assumed premium is below the threshold that subsequently becomes subject to one of the independence requirements as provided in Section 38a-54-11a(h) of the Regulations of Connecticut State Agencies due to changes in premium shall have one year following the year the threshold is exceeded, but not earlier than January 1, 2010, to comply with the independence requirements. Likewise, an insurer that becomes subject to one of the independence requirements as a result of a business combination shall have one calendar year following the date of acquisition or business combination to comply with the independence requirements.