Rhode Island Code of Regulations › Title 230 - Department of Business Regulation › Chapter 20 - Insurance › Subchapter 45 - Financial Standards and Corporate Operations › Part 7 - Annual Financial Reporting › Section 230-RICR-20-45-7.14 - Requirements for Audit Committees

Current through June 14, 2024
A.
										§
										7.14   of
				  this Part 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.
1. 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
				  Regulation. Each accountant shall report directly to the Audit
				  Committee.
2. The Audit Committee
				  of an insurer or group of insurers 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
				  if required by §
											7.15   of this Part.
3. 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 §§
											7.14(A)(6)  and
				   7.3(A)(3)   of this Part.
4. In order
				  to be considered independent for purposes of this §
											7.14   of this Part, 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 (1) of its
				  affiliates.
5. 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
				  State, 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.
6. To exercise the
				  election of the controlling person to designate the Audit Committee for
				  purposes of this Regulation, the ultimate controlling person shall provide
				  written notice to the commissioners 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 Commissioner by the insurer, which shall include
				  a description of the basis for the change. The election shall remain in effect
				  for perpetuity, until rescinded.
7.
				  The Audit Committee shall require the accountant that performs for an insurer
				  any audit required by this Regulation to timely report to the Audit Committee
				  in accordance with the requirements of SAS 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.
8. If an insurer is a member of an insurance
				  holding company system, the reports required by §
											7.14(A)(7)   of this Part
				  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.
9. 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
Majority (50% or
								more)
Supermajority of
requirements. See also §§
																7.14(A)(9)(a)
								and (b)   of this Part.
of members shall be independent. See also
								§§
																7.14(A)(9)(a) and (b)   of this Part.
members (75% or more)
								shall be independent. See also §
																7.14(A)(9)(a)   of this Part.
a. The
				  Commissioner has authority afforded by State law to require the entity's board
				  to enact improvements to the independence of the Audit Committee membership if
				  the insurer is in a RBC action level event, meets one (1) or more of the
				  standards of an insurer deemed to be in hazardous financial condition, or
				  otherwise exhibits qualities of a troubled insurer.
b. All insurers with less than five hundred
				  million dollars ($500,000,000.00) 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.
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.
10. 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
				  ($500,000,000.00) may make application to the commissioner for a waiver from
				  the §
											7.14   of this Part requirements based upon hardship. The insurer shall
				  file, with its annual statement filing, the approval for relief from §
											7.14    of this Part 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 shall file the approval in an electronic format acceptable to the
				  NAIC.