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June 29, 2005 at 08:00 PM
As a leading insurance regulator detailed reasons why changes to insurance accounting regulation should be put in place, the American Council of Life Insurers, Washington, offered an alternative proposal to regulators who want to include provisions of the Sarbanes-Oxley Act of 2002 in state insurance regulation.
Douglas Stolte, deputy insurance commissioner with the Virginia Insurance Bureau and head of the NAIC/AICPA working group of the National Association of Insurance Commissioners, detailed his reasoning before state insurance legislators during the summer meeting of the National Conference of Insurance Legislators in Newport, Rhode Island, on July 7.
In his remarks, Stolte noted that the NAIC’s Model Audit Rule, the regulation in which the SOX changes are being contemplated, is an NAIC accreditation standard. Ten states have adopted it by statute and 28 by regulation, he told legislators. Twelve states have adopted components of MAR through the NAIC’s annual statement filing instructions. He said that the working group would encourage those 12 states to implement it by legislation or regulation.
During his presentation, Stolte noted that the SOX changes offered “the best practices regulators believed should apply to all insurers” for auditor independence, corporate responsibility and internal controls over financial reporting.
The changes would give management ownership and responsibility for internal controls, his presentation noted.
One of the reasons this is important, he said, is because policyholders pay premiums to transfer risk of loss and do not believe that they are assuming risk that their claims will not be paid. And, he noted in his presentation, the effectiveness of regulators’ monitoring abilities is dependent on high quality financial information filed by the insurer.
He also noted that many guaranty funds impose dollar limits per claimant and annual caps on assessments.
But, he outlined reasons the changes are being opposed including current “extensive reporting and regulatory requirements,” as well as cost and the fact that insurers have not been involved in recent corporate scandals.
Regulators at NAIC, Kansas City, Mo., are working on amendments to the Model Audit Rule in an effort to include internal control and reporting requirements in SOX. Property-casualty groups, including the National Association of Mutual Insurance Companies, Indianapolis, and the Property Casualty Insurers Association of America, Des Plaines, Ill., are expressing concern over the proposed changes.
The ACLI board of directors approved the proposal which seeks to balance cost and time considerations of companies with regulators’ concern regarding internal control procedures.
Points of the proposal include:
