When state insurance regulators meet in mid-June to discussincorporating elements of the Sarbanes-Oxley Act of 2002 in a modelaudit rule that is in place in 39 states, two of three pieces underdiscussion will be moving toward completion.

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Recent discussions regarding Titles II and III potentialchanges, auditor independence and corporate governance,respectively, have resulted in changes that could be incorporatedinto draft revisions of the Model Regulation Requiring AnnualAudited Financial Statements, also called the Model Audit Rule. MARis a model of the National Association of Insurance Commissioners,Kansas City, Mo., which will be holding its summer national meetingJune 11-14.

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These two components of SOX changes will be held until work onTitle IV which covers internal controls is finalized, says DougStolte, chair of the NAIC/AICPA working group and deputycommissioner of Virginia's bureau of insurance. The goal is thatall components will be advanced together through the NAIC and thenbe brought as one change to state legislatures, he explains.

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Stolte has argued that recent events including restatement offinancial statements at American International Group, New York,underscores the need for more stringent auditing requirements atthe state level as well as the federal level.

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Insurers argue that the costs outweigh the benefits of thesechanges. At press time, the National Association of MutualInsurance Companies, Indianapolis, is finalizing a study that itsays will quantify these costs. Results of that study could bereleased next week.

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During a discussion of corporate governance or Title III issues,it was reaffirmed that when a state's statutes differed from thedraft's requirements, the draft language deferred to state law.

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The requirement that a financial expert be appointed by acompany to an audit committee was removed because regulatorsmaintained that states could not provide the same assurances ofsafe harbor protection from liability that federal law affords.

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Ed Stephenson, representing the National Alliance of LifeCompanies, Rosemont, Ill., raised a concern that the model'srequirements regarding the appointment of an independent board ofdirectors goes beyond the regulatory authority of a significantnumber of insurance commissioners and impinges on states' statutesestablishing corporate frameworks.

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And, Bill Boyd, NAMIC's financial regulation manager, says thatalthough NAMIC still has major concerns regarding the Model, someof the changes on Title III were positive steps. Requirements inTitle IV changes in Section 404 of the model is still a big issuefor NAMIC, Boyd says.

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Changes to MAR will also receive discussion during the summermeeting of the National Conference of Insurance Legislators, Troy,N.Y., during its summer meeting in Newport, Rhode Island on July7-10.

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