§ 31–311.01. Requirements for audit committees.

(a) The audit committee shall be directly responsible for the appointment, compensation, and oversight of any accountant, including the resolution of disagreements between management and the accountant regarding annual financial reporting required by this chapter. Each accountant shall report directly to the audit committee.

(b) 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.

(b-1) 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 § 31-311.01a.

(c) To be considered independent for purposes of this section, a member of the audit committee shall not, except 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; provided, that if board participation by otherwise non-independent members is legally required, such members may participate on 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.

(d) If a member of the audit committee ceases to be independent for reasons outside the member’s reasonable control, the member, upon notice to the Mayor, may remain an audit committee member until the earlier of the next annual meeting or one year from the occurrence of the event causing the member to be no longer independent.

(e) Prior to exercising the election of designating an audit committee pursuant to this chapter, the ultimate controlling person shall provide written notice to the Mayor. The written notice shall be made timely prior to the issuance of the statutory audit report and include a description of the basis for the election. An insurer may change its election by providing written notice to the Mayor with a description of the basis for the change. The election shall remain in effect until rescinded.

(f)(1) The audit committee shall require the accountant performing an audit pursuant to this chapter to report timely to the audit committee, in accordance with the requirements of SAS 61, Communication with Audit Committees, or its successor, the following:

(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 of the insurer, the ramifications of the use of the alternative disclosures, and the treatment preferred by the accountant; and

(C) Any other material written communication between the accountant and the management of the insurer, including 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 paragraph (1) of this subsection may be provided to the audit committee on an aggregate basis for the insurers in the holding company system; provided, that any substantial differences among insurers in the system are identified to the audit committee.

(g) The following criteria shall apply for determining the required proportion of independent audit committee members:

(1) If, during the prior calendar year, direct written and assumed premiums do not exceed $300 million, there shall be no minimum requirement.

(2) If, during the prior calendar year, direct written and assumed premiums exceed $300 million, but do not exceed $500 million, 50% or more of members shall be independent.

(3) If, during the prior calendar year, direct written and assumed premiums exceed $500 million, 75% or more of its members shall be independent.

(h) An insurer with direct written and assumed premiums of less than $500 million, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, may make application to the Mayor for an exemption from this section based on hardship. An insurer that has been granted an exemption pursuant to this section shall file such approval, together with its annual statement filing, with the states in which it holds a license or does business 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.

(i) 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.

(j) This section shall not apply to:

(1) Foreign or alien insurers licensed in the District; or

(2) An insurer that is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity.