Requirements For Audit Committees

This section will 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. (3-31-22) 01. Responsibility. The Audit committee will be directly responsible for the appointment, compensation and oversight of the work of any accountant (including resolution of disagreements between IDAHO ADMINISTRATIVE CODE IDAPA 18.07.04 Department of Insurance Annual Financial Reporting Section 021 Page 11 management and the accountant regarding financial reporting) for the purpose of preparing or issuing the audited financial report or related work pursuant to this chapter. Each accountant will report directly to the Audit committee. (3-31-22) 02. Corporate Membership. Each member of the Audit committee will need to 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 021.05 and Section 010 of this rule. (3-31-22) 03. Independence. In order to be considered independent for purposes of Section 021, a member of the Audit committee will not, other than in his 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 will 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 (1) of its affiliates. (3-31-22) 04. Continuation of Service. 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 Director, may remain an Audit committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one (1) year from the occurrence of the event that caused the member to be no longer independent. (3-31-22) 05. Controlling Person. To exercise the election of the controlling person to designate the Audit committee for purposes of this rule, the ultimate controlling person will provide written notice to the directors of insurance of the affected insurers. Notification will 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 Director by the insurer, which needs to include a description of the basis for the change. The election will remain in effect for perpetuity, until rescinded. (3-31-22) 06. Accountant’s Reports to Audit Committee. The Audit committee will require the accountant that performs for an insurer any audit prescribed by this rule to timely report to the Audit committee in accordance with the standards of his profession. If an insurer is a member of an insurance holding company system, the reports prescribed by Subsection 021.06 of this rule, 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. The accountant’s reports need to include: (3-31-22) a. All significant accounting policies and material permitted practices; (3-31-22) 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 (3-31-22) c. Other material written communications between the accountant and the management of the insurer, such as any management letter or schedule of unadjusted differences. (3-31-22) 07. Requisite Proportion of Independent Audit Committee Members. The proportion of independent Audit committee members will meet or exceed the following criteria: (3-31-22) 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 and B. Majority (50% or more) of members will be independent. See also Note A and B. Supermajority of members (75% or more) will be independent. See also Note A. IDAHO ADMINISTRATIVE CODE IDAPA 18.07.04 Department of Insurance Annual Financial Reporting Section 022 Page 12 (3-31-22) 08. Hardship Waiver. An insurer with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than five hundred million dollars ($500,000,000) may make application to the Director for a waiver from the Section 021 requirements based upon hardship. The insurer will file, with its annual statement filing, the approval for relief from Section 021 with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer will file the approval in an electronic format acceptable to the NAIC. (3-31-22) 022. CONDUCT OF INSURER IN CONNECTION WITH THE PREPARATION OF REQUISITE REPORTS AND DOCUMENTS. 01. False or Misleading Statements. No director or officer of an insurer may, directly or indirectly make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or communication prescribed under this chapter. (3-31-22) 02. Omissions. No director or officer of an insurer may, directly or indirectly omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which the statements were made, not misleading to an accountant in connection with any audit, review or communication prescribed under this chapter. (3-31-22) 03. Coercion. No officer or director of an insurer, or any other person acting under the direction thereof, may directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any accountant engaged in the performance of an audit pursuant to this chapter if that person knew or should have known that the action, if successful, could result in rendering the insurer’s financial statements materially misleading. For purposes of Subsection 022.03 of this rule, actions that, “if successful, could result in rendering the insurer’s financial statements materially misleading” include, but are not limited to, actions taken at any time with respect to the professional engagement period to coerce, manipulate, mislead or fraudulently influence an accountant: (3-31-22) a. To issue or reissue a report on an insurer’s financial statements that is not warranted in the circumstances (due to material violations of statutory accounting principles prescribed by the Director, generally accepted auditing standards, or other professional or regulatory standards); (3-31-22) b. Not to perform audit, review or other procedures prescribed by generally accepted auditing standards or other professional standards; (3-31-22) c. Not to withdraw an issued report; or (3-31-22) d. Not to communicate matters to an insurer’s Audit committee. (3-31-22)