Section 3.21.770. Audit committee.

	(a)  The audit committee of an entity that  
		(1) controls an insurer may be the insurer's audit committee required under AS 21.09.200 at the election of the controlling person; or  
		(2) controls a group of insurers may be the audit committee required under AS 21.09.200 for one or more of the controlled insurers at the election of the controlling person.  
	(b)  The provisions of (c) through (n) of this section do not apply to  
		(1) a foreign or alien insurer;  
		(2) an insurer that is a SOX compliant entity; or  
		(3) an insurer that is a direct or indirect wholly-owned subsidiary of a SOX compliant entity.  
	(c)  The audit committee of an insurer shall  
		(1) be directly responsible for the appointment, compensation, and oversight of the work of an accountant engaged for the purpose of preparing or issuing the annual audited financial report or related work, including resolution of disagreements between management and the accountant regarding financial reporting; and  
		(2) require that accountant to report directly to the audit committee.  
	(d)  Each member of the audit committee must be a member of the governing board of the insurer or a member of the governing board of an entity designated under (h) of this section.  
	(e)  With the exception of actions taken in the capacity of a member of the audit committee, the board of directors, or any other board committee of the insurer, to be considered independent for purposes of this section, a member of the audit committee may not  
		(1) accept any consulting, advisory, or other compensatory fee from the insurer or a subsidiary of the insurer; or  
		(2) be an affiliated person of the insurer or a subsidiary of the insurer.  
	(f)  If a law requires board participation by a non-independent member as described in (e) of this section, that member may participate in the audit committee and be designated as independent for audit committee purposes unless the non-independent member is an officer or employee of the insurer or an affiliate of the insurer.  
	(g)  If a member of the audit committee ceases to be independent for reasons outside the member's reasonable control, the member may, with notice by the insurer to the director, remain on the audit committee until the earlier of the next annual meeting of the insurer or one year from the occurrence of the event that caused the member to be no longer independent.  
	(h)  If the controlling person elects to designate the audit committee, the ultimate controlling person as defined in 3 AAC 21.195 shall provide written notice to the director.  Notification must be made no more than 30 days after the election or 30 days before the issuance of the next annual audited financial report, whichever is earlier.  The notice must include a description of the basis for the election made by the controlling person.  The election can be changed through notice to the director by the insurer, which must include a description of the basis for the change.  The election must remain in effect until it is rescinded.  
	(i)  The audit committee shall require the accountant to timely report to the audit committee in accordance with generally accepted auditing standards, including the reporting of  
		(1) all significant accounting policies and material permitted practices;  
		(2) all material alternative treatments of financial information within accounting practices prescribed or otherwise permitted by the insurance regulatory official of the state of domicile 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) other material written communications between the accountant and the management of the insurer, including any management letter or schedule of unadjusted differences.  
	(j)  If an insurer is a member of an insurance holding company system, the reports required in (i) of this section may be provided to the audit committee on an aggregate basis, if any substantial differences among insurers in the system are identified to the audit committee separately.  
	(k)  The minimum required proportion of independent audit committee members based on the amount of direct written and assumed premium from nonaffiliates reported for the prior year in the most recently filed annual financial statement of the insurer is as follows:  
		(1) if an insurer reports less than $300,000,000, a minimum number of independent audit committee members is not required;  
		(2) if an insurer reports $300,000,000 or more and $500,000,000 or less, 50 percent or more of the audit committee members must be independent;  
		(3) if an insurer reports more than $500,000,000, 75 percent or more of the audit committee members must be independent.  
	(l)  The director may require the insurer's governing board to increase the proportion of independent audit committee members if the insurer  
		(1) is in a level event as defined in AS 21.14.200; or  
		(2) meets one or more of the standards in 3 AAC 21.510 for impairment.  
	(m)  If an insurer has direct written and assumed premium from nonaffiliates in an amount less than $500,000,000, excluding premiums reinsured with the Federal Crop Insurance Corporation established under 7 U.S.C. 1501 - 1524 and the national flood insurance program established under 42 U.S.C. 4001 - 4129, the insurer may apply to the director for a waiver from this section based upon hardship.  If the waiver is granted, the insurer shall include a copy of the waiver with its annual statement filing to  
		(1) the states in which the insurer is licensed or does business; and  
		(2) the National Association of Insurance Commissioners.  
	(n)  An insurer that is not required to have independent audit committee members or only a simple majority of independent audit committee members because the total written and assumed premium is below the applicable threshold in (k) of this section but subsequently becomes subject to one of the minimum independent board member requirements under (k) of this section due to changes in premium has one calendar year following the year the threshold is exceeded to comply with those requirements.  An insurer that becomes subject to one of those requirements as a result of a business combination has one calendar year following the date of acquisition or combination to comply with the independent board member requirement.  

Authorities

21.06.090;21.09.200

Notes

Authority

AS 21.06.090 AS 21.09.200

History

Eff. 1/1/2010, Register 192