Model Audit Drafting Continues As Insurers Complain
By Jim Connolly
NU Online News Service, Sept. 20, 10:50 a.m. EDT?Regulators drafting efforts to beef up insurer financial reporting requirements are still drawing industry gripes despite the addition of language that would exempt more carriers.[@@]
The conflict was aired at the fall meeting of the National Association of Insurance Commissioners in Anchorage, Ala., where insurance industry representatives said they would like to see good reasons offered to support the need for additional reporting requirements.
During a report on progress being made on advancing the Model Regulation Requiring Annual Audited Financial Reports, regulators told insurers that those with under $100 million in direct and written premium could request an exemption to use an accountant who did double duty for the firm.
Without the exemption, under the model, a commissioner would not recognize as a qualified independent public accountant, nor accept an annual audited financial report from, 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 insurer's audit committee.
Despite insurer complaints, Doug Stolte, a Virginia regulator who is chair of the working group of the NAIC and American Institute of Certified Public Accountants, said that 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 said.
Work on 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 Mr. Stolte. That, he predicted, will be a more contentious issue.
Mr. Stolte, at a seminar sponsored by the American Bar Association during the NAIC meeting, said that 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, he said, has addressed Sarbanes-Oxley (the Public Company Accounting Reform and Investor Protection Act) head on, and the insurance "industry is not immune to a big corporate failure."
It is an opinion that Steve Johnson, a Pennsylvania regulator, shares. He asked insurers attending a session of the NAIC/AICPA working group why they would need to study an idea that he says makes sense. "Why study something that makes good sense? In the end, it will lead to better financial reporting. How can that be a bad idea?"
But members of the insurance industry maintain that the regulation is not needed. The Life Insurers Council, Atlanta, said it opposes the imposition of additional regulation and the costs it said are associated with it.
The National Association of Mutual Insurance Companies, Indianapolis, and the Property Casualty Insurers Association of America, Des Plaines, Ill., also questioned the need for the model.
Peter Bisbecos, a Namic representative, said that , "no one has yet to show a reason why this is needed."
In fact, NAMIC's Bill Boyd asserted, "We remain consistent in our belief that this is not needed. The existing solvency regulation, he continued, is powerful and deep and does not need augmentation."
He noted that if the model proceeds, then changes, such as the increase in the premium amount that could be used to exempt an insurer, are positive. However, he adds that the limit should be higher.
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