NU Online News Service
Regulators and insurance industry representatives appear close to a compromise on a formula to impose Sarbanes-Oxley Act corporate governance rules on mutual companies.
"We are coming down to the home stretch with this proposal," said David Steier of the Property Casualty Insurers Association of America. "And while work must be done before the solution can be realized, we are pleased with the substantial progress made thus far."
For the past couple of years, the insurance industry has vigorously fought regulators' efforts to impose on mutual companies new reporting rules stemming from the 2002 Sarbanes-Oxley Act.
Last week, regulators and industry representatives met in Chicago and hammered out a compromise on the most contentious issue of internal control attestation.
The proposal will require company management to affirm its responsibility for internal controls and the fact that they are effective.
In addition, companies must add a brief description of the basis for management's assertions, which will be reviewed by regulators during the normal financial examination process, but will not require the use of a specific internal control framework.
The Sarbanes-Oxley Act was passed in the aftermath of the Enron and WorldCom accounting scandals and the loss of shareholder value their implosions represented.
Regulators, led by Virginia Deputy Commissioner Doug Stolte, have asserted that the rules will be valuable in helping to detect and prevent similar breakdown in non-public insurance companies.
Insurance representatives maintain that the industry is already subject to more scrutiny than other sectors and that SOX rules were aimed at protection of investors, who do not exist in the mutual company realm.
The National Association of Mutual Insurance Companies has maintained the most steadfast opposition to the new rules and has rejected the proposed compromise.
William Boyd, NAMIC financial regulation manager, said cost estimates for compliance under the proposed compromise have reached $100 million. "We cannot conclude that the alternate proposal is rational based on cost," Mr. Boyd said. "It makes regulators feel good, but it is not needed."
Pennsylvania Deputy Insurance Commissioner Steve Johnson told the meeting last week that an NAIC subgroup could give the first blessing to the proposal next month at the winter meeting in Chicago and that final approval could come late next year. With that timing, it could be part of the NAIC's accreditation requirements, thus required by the states, by the end of the decade.
The industry-backed proposal calls for the rules to apply only to companies with a $500 million minimum annual premium level.
The proposal also calls for disclosure for any weakness in internal control reporting to state financial examiners to be treated confidentially.
But Mr. Boyd noted that could be problematic in certain states.
The regulator-industry task force has already approved new SOX-related rules regarding auditor independence and corporate governance as it affects audit committees and other aspects of financial reporting.
© Touchpoint Markets, 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.