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Virginia Regulator Talks About SOX

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Doug Stolte showed some flexibility toward insurers last week during a discussion in Atlanta about a proposed financial reporting standard.[@@]

Stolte is Virginia’s deputy insurance commissioner and chairman of a working group that brings members of the National Association of Insurance Commissioners, Kansas City, Mo., together with members of the American Institute of Certified Public Accountants, New York.

Many members of the working group say that a proposed NAIC Model Regulation Requiring Annual Audited Financial Reports ought to require insurers over a certain minimum size to comply with the Section 404 accounting provisions of the Sarbanes-Oxley Act of 2002.

Congress enacted SOX to require publicly traded companies to meet certain accounting and financial reporting standards.

At an interim working group meeting, Stolte pointed out that privately held banks already have to comply with requirements similar to those included in SOX Section 404, which requires company managers to attest to the adequacy of their companies’ internal controls.

Insurers should not be different from other financial services operations, Stolte said.

Insurers argued that risk-based capital reporting requirements and other regulatory tools already give regulators the information they need to monitor insurer finances, but Stolte said regulators need standards similar to the SOX standards because the RBC tools and other tools all depend on accurate financial reporting.

Besides, Stolte said, auditors already are supposed to send a letter to regulators to notify them if an insurer has a significant deficiency in its financial statements.

Stolte reported that in 12 years he has received only one such letter.

But Stolte said one attestation should be enough for parent companies that own more than one insurance company, as long as the parent companies and the daughter companies use the same systems.

Stolte also said regulators would be willing to discuss whether $25 million is the right premium ceiling for their definition of a “small insurance company.” Regulators say they probably would exclude small, privately held insurers from any new reporting requirements based on SOX Section 404.