Insurers have released a new proposal for strengthening financial reporting requirements for mutual insurers and other insurers that are not publicly traded.[@@]
State insurance regulators have been reviewing the proposal here at an interim meeting of the National Association of Insurance Commissioners, Kansas City, Mo.
The new proposal, drafted mainly by property-casualty insurers, follows a proposal released by the American Council of Life Insurers, Washington. The ACLI proposal includes a provision that would let insurers file groupwide reports rather than separate reports for each legal entity under a group’s corporate umbrella. The ACLI proposal also would take a flexible, “risk-based” approach to guide financial testing and documentation.
The new p-c insurer proposal appears to have the support of the National Association of Mutual Insurance Companies, Indianapolis, a group that has argued that some earlier NAIC proposals for updating financial reporting standards would lead to big increases in administrative costs.
All of the financial reporting proposals represent efforts to incorporate the spirit of the Sarbanes-Oxley Act of 2002, a financial and internal controls reporting law for publicly traded companies, into insurance reporting standards.
Douglas Stolte, a deputy insurance commissioner from Virginia, and Steve Johnson, a deputy commissioner from Pennsylvania, are welcoming insurers’ work on the financial reporting issue.
The latest proposal appears to be a break from the insurance industry’s past attempts to kill efforts to add elements from SOX to the NAIC’s Model Audit Rule, Stolte and Johnson say.
The NAIC has been working on a Model Audit Rule update for 2 years. If a consensus can be reached, an update measure could advance to the NAIC/American Institute of Certified Public Accountants working group by the end of the year, Johnson says.
Here are some other views about financial reporting requirements that emerged at the interim meeting:
- The current NAIC draft would exempt insurers with less than $25 million in annual premium revenue from the new reporting arguments. The insurers’ new proposal would increase the limit to $500 million. Johnson says he would like to see a limit of $200 million to $300 million.
- Johnson says the NAIC could set a uniform effective date through use of NAIC accreditation standards.
- Insurers are pushing for requirements that they report only “material weaknesses” in internal controls, not merely “significant deficiencies.” Otherwise, if regulators keep the broader reporting requirement, publicly traded companies may have to file Form 8-K news notices with the U.S. Securities and Exchange Commission every time they notify regulators about potential deficiencies, according Nationwide Mutual Insurance Company, Columbus, Ohio.