Oklahoma § 36-311A.14 - Audit committee - Membership - Duties

§ 36-311A.14. Audit committee - Membership - Duties

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

Oklahoma Statutes - Title 36. Insurance

and the accountant regarding financial reporting, for the purpose of

preparing or issuing the audited financial report or related work

pursuant to the Oklahoma Annual Financial Report Act. Each

accountant shall report directly to the audit committee.

C. 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 Section 311A.14 of this title.

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 an entity elected pursuant to subsection G of this

section and paragraph 3 of Section 311A.3 of this title.

E. In order to be considered independent for purposes of this

section, a member of the audit committee may not, other than in the

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 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.

F. If a member of the audit committee ceases to be independent

for reasons outside the reasonable control of the member, 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.

G. To exercise the election of the controlling person to

designate the audit committee for purposes of the Oklahoma Annual

Finance Report Act, the ultimate controlling person shall provide

written notice to the Insurance Commissioner 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.

H. 1. The audit committee shall require the accountant that

performs for an insurer any audit required by the Oklahoma Annual

Financial Report Act to timely report to the audit committee in

accordance with the requirements of SAS 61, Communication with Audit

Committees, or its replacement, including:

Oklahoma Statutes - Title 36. Insurance

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 or schedule of unadjusted differences.

2. If an insurer is a member of an insurance holding company

system, the reports required by paragraph 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.

I. The proportion of independent audit committee members shall

meet or exceed the following criteria set out in paragraphs 1, 2 and

3 of this subsection:

1. No Minimum Requirements. There are no minimum requirements

for insurers with prior calendar year direct written and assumed

premiums of Three Hundred Million Dollars ($300,000,000.00) or less;

2. Majority of Members. Fifty percent (50%) or more of members

of the independent audit committee for insurers with prior calendar

year direct written and assumed premiums of between Three Hundred

Million Dollars ($300,000,000.00) and Five Hundred Million Dollars

($500,000,000.00); or

3. Supermajority of Members. Seventy-five percent (75%) or

more of members of the independent audit committee for insurers with

prior calendar year direct written and assumed premiums of over Five

Hundred Million Dollars ($500,000,000.00).

J. The Commissioner may require improvements to the

independence of the audit committee membership of any insurer if the

insurer is in a RBC 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.

K. For purposes of this section, 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.

L. An insurer with direct written and assumed premium,

excluding premiums reinsured with the Federal Crop Insurance

Corporation and Federal Flood Program, of less than Five Hundred

Million Dollars ($500,000,000.00) may make application to the

Commissioner for a waiver from the requirements of this section

based upon hardship. The insurer shall file, with its annual

Oklahoma Statutes - Title 36. Insurance

statement filing, the approval for relief from this section with the

states that it is licensed in or doing business in and the National

Association of Insurance Commissioners (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.

Added by Laws 2009, c. 176, § 16, eff. Nov. 1, 2009. Amended by

Laws 2019, c. 28, § 7, eff. Nov. 1, 2019.

§36-311A.14.1. Internal audit function requirements - Exemptions.

A. Exemption – An insurer is exempt from the requirements of

this section if:

1. The insurer has annual direct written and unaffiliated

assumed premium, including international direct and assumed premium,

but excluding premiums reinsured with the Federal Crop Insurance

Corporation and Federal Flood Program less than Five Hundred Million

Dollars ($500,000,000.00); or

2. If the insurer is a member of a group of insurers that has

annual direct written and unaffiliated assumed premium, including

international direct and assumed premium, but excluding premiums

reinsured with the Federal Crop Insurance Corporation and Federal

Flood Program, less than One Billion Dollars ($1,000,000,000.00).

B. Function – The insurer or group of insurers shall establish

an internal audit function providing independent, objective and

reasonable assurance to the audit committee and insurer management

regarding the insurer's governance, risk management and internal

controls. This assurance shall be provided by performing general

and specific audits, reviews and tests and by employing other

techniques deemed necessary to protect assets, evaluate control

effectiveness and efficiency and evaluate compliance with policies

and regulations.

C. Independence – In order to ensure that internal auditors

remain objective, the internal audit function must be

organizationally independent. Specifically, the internal audit

function will not defer ultimate judgment on audit matters to

others, and shall appoint an individual to head the internal audit

function who will have direct and unrestricted access to the board

of directors. Organizational independence does not preclude dualreporting relationships.

D. Reporting – The head of the internal audit function shall

report to the audit committee regularly, but no less than annually,

on the periodic audit plan, factors that may adversely impact the

internal audit function's independence or effectiveness, material

findings from completed audits and the appropriateness of corrective

actions implemented by management as a result of audit findings.

E. Additional Requirements – If an insurer is a member of an

insurance holding company system or included in a group of insurers,

the insurer may satisfy the internal audit function requirements set

Oklahoma Statutes - Title 36. Insurance

forth in this section at the ultimate controlling parent level, an

intermediate holding company level or the individual legal entity

level.

F. Upon written request and with good cause shown, the

Insurance Commissioner may grant an exemption from the internal

audit function.

Added by Laws 2019, c. 28, § 8, eff. Nov. 1, 2019.