Industry Opposes SOX Rules for Mutuals
By Steve Tuckey
NU Online News Service, Feb. 8, 1:02 p.m. EST?Insurance industry representatives will argue to insurance regulators this week that non-public insurance companies do not need a rule requiring the kind of accounting and accountability required of traded companies under the federal Sarbanes-Oxley Act.[@@]
The insurers will make their case before a National Association of Insurance Commissioners group, which is due to convene tomorrow in Orlando, Fla., and examine whether internal controls reporting measures should be imposed on mutual insurance companies.
"Much of the industry does not want this," said William Boyd, financial regulation manager for the National Association of Mutual Insurance Companies. "What we have stressed again and again is that regulation of insurance is already stronger than that applied to public companies, and that regulators need to justify, via specific cases and cost-benefit analysis, what they propose to do."
Mr. Boyd said the fact that "it feels good to them and that other regulators in the industry are doing it" does not justify the process.
The NAIC effort to impose SOX-like rules has been spearheaded by Virginia regulator Doug Stolte, co-chair of the NAIC-AICPA liaison panel. He and other regulators have argued that non-public insurance companies need to be held to the same standard of reporting as all public companies.
"The risk being transferred by the policyholder is not to protect against the loss of discretionary income, as is the case in many situations for public investors," Mr. Stolte said. "Rather, the policyholder's risk of loss consists of items that are essential to one's continued health and livelihood: their home, personal property and protection of income."
The two sides have agreed on a standard for ensuring the independence of auditors by requiring some rotation, and are now working on a proposal that will set rules for the independence of board members who sit on audit committees.
But industry in general has described Section 404 of Sarbanes-Oxley requiring new internal controls assessments and attestation as the greatest bane. Property-casualty and life trade groups are expected to make the greatest effort to ensure the new rules are not too burdensome for the non-public insurance companies, who currently are not subject to them.
The insurance industry is also facing new pressure from the Securities and Exchange Commission to shed more light on how reserves are established for long-term claims. In addition, the NAIC has expanded the actuarial opinion rules to require more commentary and disclosure on how reserves are arrived at on the condition they remain confidential.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.