Regulators continue to say that stronger financial reporting requirements make good sense and that insurers should embrace a model regulation that achieves that goal.
In response, representatives of the insurance industry attending the fall meeting of the National Association of Insurance Commissioners said they would like to see good reasons offered to support the need for additional reporting requirements.
During a progress report on the Model Regulation Requiring Annual Audited Financial Reports, regulators cited two areas of the model– auditor independence and corporate responsibility–that roughly equate with requirements in Title II and Title III of the Sarbanes-Oxley Act of 2002.
Insurers were told that the total amount of direct written and assumed premium that could exempt insurers from requirements under Section 7 of the model that are focused on the qualifications of an independent certified public accountant hired by the company was being raised from $25 million to $100 million.
Specifically, insurers with under $100 million in direct and written premium could request an exemption from a requirement that a commissioner not recognize as a qualified independent public accountant, nor accept an annual audited financial report, prepared by an accountant who provides non-audit services simultaneously with audit services.
Additionally, insurers with under $100 million in premium could request an exemption from a provision that would prohibit an independent CPA from engaging in non-audit services unless the activity was approved in advance by the insurers audit committee.
Doug Stolte, a Virginia regulator who is chair of the NAIC/AICPA working group, says progress is being made on both the detail work of the model and on bringing regulators and insurers on board with the idea of a model. “I believe that there is a lot less rhetoric on killing it.” There is more of a willingness to discuss it, he continues.
Section 16 of the draft that addresses a requirement by management to certify as to the internal controls over financial reporting still needs to be worked on, says Stolte, and that will be a more contentious issue.
But at a seminar sponsored by the American Bar Association during the NAIC meeting, Stolte said the work on the model is worth the effort. He cited the need for ensuring accurate financial reporting in order to create better solvency oversight.
“Every other industry has addressed SOX head on,” he says. “The industry is not immune to a big corporate failure.”
Members of the industry still maintain the regulation is not needed. For instance, the Life Insurers Council, Atlanta, says it opposes the imposition of additional regulation and the costs associated with it.
Reproduced from National Underwriter Edition, September 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.