Insurers Bash Wording In Model Audit Law

By Jim Connolly

NU Online News Service, July 29, 10:10 a.m. EDT?Industry representatives meeting with state insurance regulators drafting a model financial audit law for carriers have argued that some requirements being considered are unneeded, redundant and costly.[@@]

But the proposal to include reporting provisions of the Sarbanes-Oxley Act of 2002 were supported by a regulator who suggested that under current law insurers are not always meeting requirements for fiscal disclosure.

Those viewpoints surfaced at last week's meeting in Atlanta of a working group of the National Association of Insurance Commissioners and the American Institute of Certified Public Accountants.

Trade groups voicing their position on the draft of the Model Regulation Requiring Annual Audited Financial Reports included the American Council of Life Insurers, American Insurance Association, National Association of Mutual Insurance Companies, and the Property Casualty Insurers Association of America.

Doug Stolte, Virginia deputy commissioner-financial regulation, who chairs the NAIC/AICPA working group, said currently, if a company has a significant deficiency in its financial statements, its auditors are supposed to send a letter to regulators stating that fact. In 12 years, he said, he has only received one such letter.

Responding to an argument from insurers that there are already regulatory tools such as risk-based capital requirements, Mr. Stolte said that all such tools depend on accurate financial reporting and implementing provisions similar to Sarbanes-Oxley are needed.

Mr. Stolte pointed out that banks have requirements similar to Section 404 of Sarbanes-Oxley, which requires managers to attest that there are sufficient controls over systems and that insurers should not be different than other financial services operations.

One issue that has been discussed is the expense of making individual legal entities rather than the parent company comply with the new measures. Mr. Stolte said that regulators believe that if both use the same systems then one attestation should be enough.

He advised that the $25 million premium ceiling for the definition of a small company is something that regulators would be willing to discuss with insurers. In the model, small companies are exempted from the reporting requirement.

Bill Boyd, NAMIC's financial regulation manager, said that there will be enormous costs for auditors and employee hours expended. According to industry representatives at the meeting, one large public insurer spent $10 million and 100,000 employee hours complying with Sarbanes-Oxley.

Roger Schmelzer, NAMIC senior vice president-state and regulatory affairs, said there should be some demonstration that there is a problem that needs to be resolved.

Jim Renz, ACLI director of accounting policy, said that costs will be significant for large life insurers which are not public and do not currently have to comply with Sarbanes-Oxley.

Even if a company does have to comply with Sarbanes-Oxley, he added, it is to meet Generally Accepted Accounting Procedures. If a company also has to comply for statutory accounting, it could create expenses and raise issues associated with requirements such as reserving which are treated differently under GAAP and SAAP.

GAAP, rather than statutory accounting principles, drives stock prices and affects executive bonuses, Mr. Renz said.

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Insurers Bash Wording In Model Audit Law

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