NU Online News Service, May 17, 5:30 p.m. EDT–A key regulator working on corporate disclosure rules for the insurance industry said the need for such regulation has been spotlighted by revelations about American International Group accounting.
The comments in an interview with National Underwriter were made by Doug Stolte, who chairs a working group of the National Association of Insurance Commissioners and American Institute of Certified Public Accountants that is drafting a Model Audit Rule.
Mr. Stolte, the Virginia Insurance Bureau deputy commissioner, pointed to AIG as a reason for making some requirements of Sarbanes-Oxley Act of 2002, the federal corporate disclosure law, apply to larger private mutual insurers. Publicly traded insurers already are governed by Sarbanes-Oxley provisions.
Incorporating portions of Sarbanes-Oxley, Mr. Stolte said, take on more importance since New York-based AIG's announcement that a recalculation of financial statements would reduce revenue by $2.7 billion.
Steve Johnson, deputy commissioner in Pennsylvania, said during an interim meeting on the accounting rules last week there was discussion of regulating risk-based systems and controls rather than on every possible accounting system and control.
Property-casualty insurance groups have questioned whether the costs incurred by these changes in accounting rules are worth it.
The National Association of Mutual Insurance Companies, Indianapolis, said it is completing a study of insurers to determine what the extent of such costs might be, said Bill Boyd, NAMIC's financial regulation manager.
Currently, companies under $25 million would not be required to comply with provisions, although regulators have indicated a willingness to consider a higher threshold.
Neil Aldredge, NAMIC's state affairs director, said that during the meeting last week he cited reservations about extending Sarbanes-Oxley requirements that have been raised by the National Conference of Insurance Legislators. NCOIL, he said, has concerns both about procedural and substantive changes to audit rules for insurers.
NCOIL on March 10 objected to the NAIC's incorporation of any audit changes by revising the language in annual statement instructions. It also objected to imposing accounting reporting requirements it said are designed for public companies to non-public companies.
Feedback from at least one company that spoke at the interim meeting suggests that Sarbanes-Oxley requirements are "enormously burdensome," according to Steve Broadie, vice president of financial legislation and regulation with the Property Casualty Insurance Association of America (PCI), Des Plaines, Ill. The framework does not apply well to small and medium sized insurers, he said.
Mr. Broadie noted findings by the Financial Executives Institute, Florham Park, N.J., that the average cost for a company to comply with Sarbanes-Oxley was $4.3 million.
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