Audit Charter

FHM Insurance Company
Audit Committee Charter

I. PURPOSE

The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Company to any governmental body, to the Company’s Members, to the agents that market its insurance products (“Agents”), or to the public; the Company’s systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board of Directors have established; and the Company’s auditing, accounting and financial reporting processes generally. Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures and practices at all levels. The Audit Committee’s primary duties and responsibilities are to:

Serve as an independent and objective party to monitor the Company’s financial reporting process and internal control system.

Review and approve the audit efforts of the Company’s independent accountants.

Provide an open avenue of communication among the independent accountants, financial and senior management, and the Board of Directors.

The Audit Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter.

In discharging its responsibilities, the Committee is not itself responsible for the planning or the performance of audits, or for any determination that the Company’s financial statements are complete and accurate, or in accordance with statutory accounting principles (“SAP”). Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Company’s financial statements.

The Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and it is authorized to retain, at the expense of the Company, independent legal, accounting, or such other advices as it may deem necessary or advisable to carry out its duties.

II. COMPOSITION

The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee. All members of the Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the committee shall have accounting or related financial management expertise. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company or an outside consultant.

The Members of the Committee shall be elected by the Board at the Annual Organizational Meeting of the Board or until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership.

III. MEETINGS

The Committee shall meet at least four times annually, or more frequently as circumstances dictate.

IV. RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties, the Audit Committee shall:

Independent Audit
1. The audit committee will be directly responsible for the appointment, compensation and oversight of the work of the independent audit, including resolving disagreements between management and the auditor regarding financial reporting.
2. The audit committee must require the auditor to timely report to the audit committee:
a. All critical accounting policies and practices (prescribed and permitted);
b. All material alternative treatments of financial information within statutory accounting principles that have been discussed with management, ramifications of the use of such alternatives and the treatment preferred by the auditor;
c. Other material written communications between the auditor and management, such as any management letter or schedule of unadjusted differences.

Documents/Reports Review
1. Review and update this Charter periodically, at least annually, as conditions dictate.
2. Review the Company’s annual financial statements and any reports or other financial information submitted to any governmental body, the Company’s Members and Agents or the public, including any certification, report, opinion, or review rendered by the independent accountants.
3. Review periodically, but no less frequently than annually, a summary of the Company’s transactions with directors and executive officers and with firms that employ directors, as well as any other material related party transactions.
4. Review regular internal reports to management and management’s response.
5. Review correspondence, complaints, and any other communication between the Company and the Florida Department of Insurance.

Independent Accountants
6. Recommend to the Board of Directors the selection of the independent accountants, considering independence and effectiveness and approve the fees and other compensation to be paid to the independent accountants. On an annual basis, the Committee should review and discuss with the accountants all significant relationships the accountants have with the Company to determine the accountants’ independence.
7. Review the performance of the independent accountants and approve any proposed discharge of the independent accountants when circumstances warrant.
8. Periodically consult with the independent accountants out of the presence of management about internal controls and the fullness and accuracy of the company’s financial statement.

Financial Reporting Processes
9. In consultation with the independent accountants and management, review the integrity of the Company’s financial reporting processes, both internal and external.
10. Consider the independent accountants’ judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting, and be aware of how the application of SAP in the Company’s financial reporting differs from generally accepted accounting principles (“GAAP”).
11. Confer with independent accountants and management regarding SAP and any changes made to SAP.
12. Consider and approve, if appropriate, major changes to the Company’s auditing and accounting principles and practices as suggested by the independent accountants and management.

Process Improvement
13. Establish regular and separate systems of reporting to the Audit Committee by Management and the independent accountants regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments.
14. Following completion of the annual audit, review separately with management, and the independent accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.
15. Review any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.
16. Review with the independent accountants and management, the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented. This review should be conducted at an appropriate time subsequent to implementation of changes or improvements, as decided by the Committee.

Ethical and Legal Compliance
17. Review periodically, but not less frequently than annually, the Company’s Vision, Beliefs, Mission, and Guiding Principles to ensure that management has established a system to monitor and comply with the goals and objectives set forth in these foundation statements.
18. Make sure that management has a system in place to ensure that the Company’s financial statements, reports and other financial information disseminated to governmental organizations, the Company’s Members and Agents, and the public satisfy legal requirements.
19. Review activities, organizational structure, experience and qualifications of the persons in the Company responsible for the Company’s financial management.
20. Review, with the Company’s counsel, legal compliance matters.
21. Review, with the Company’s counsel, any legal matters that could have a significant impact on the Company’s financial statements.

Miscellaneous
22. Evaluate the Committee’s performance no less frequently than annually.
23. Delegate any of its responsibilities to one or more members of the Committee.
24. Review accounting and financial human resources and succession planning within the Company.
25. Submit the minutes of all meetings of the Audit Committee to, or discuss the matters discussed at each Committee meeting with, the Board of Directors.
26. Perform any other activities consistent with this Charter, the Company’s By-Laws and governing law, as the Committee or the Board deems necessary or appropriate.

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