After two years of spirited debate, the National Association of Insurance Commissioners has given its first green light to a controversial set of new financial reporting requirements for nonpublic insurers patterned after the U.S. Sarbanes-Oxley Act.
Pennsylvania Deputy Commissioner Steve Johnson hailed approval by the NAIC-AICPA Liaison Committee, comparing it to accreditation as well as standardization of statutory accounting processes as major steps in the history of solvency regulation.
Full NAIC approval could come as early as the group's next quarterly meeting in Washington, D.C., June 10-13.
However, pockets of industry opposition remain strong, led by the National Association of Mutual Insurance Companies. NAMIC's senior state advocacy director, Neil Alldredge, said state legislative opposition could ultimately make last week's action here a pyrrhic victory for regulators pushing the measure.
The NAIC committee approved amendments to the Model Audit Rule aimed at ensuring company auditors remain independent of clients by prohibiting certain consulting services, as well as ensuring that members of audit committees remain independent of company management.
Mr. Johnson expressed alarm that companies in the age of Enron and WorldCom would not want to take some of the measures called for in the amendments as a matter of corporate prudence.
Most of the controversy surrounding the proposal centered on the internal controls reporting requirements, which public companies have found the most onerous in Sarbanes-Oxley since its passage in 2002.
In a compromise worked out with industry representatives, companies will no longer have to provide outside attestation of the adequacy of such controls. That change did much to secure most of the insurance industry's grudging support.
Steve Broadie, financial regulation manager for the Property Casualty Insurers Association of America, said he hoped the panel would wait for implementation guidance to be developed before it gave its approval.
However, Committee Chair Doug Stolte, a Virginia deputy commissioner, promised that no "regulatory mischief" would take place in the development of the guidance.
The amendments face a long road before they become actual practice because, in another concession to industry criticism, the program was written to ensure either state legislators or lawmakers must approve them before they are in force.
Mr. Alldredge said that fierce and united opposition to the requirements expressed by the National Conference of Insurance Legislators during its meeting last month in Ft. Lauderdale, Fla., could make enactment problematic in the coming years.
A resolution vigorously opposing regulators' efforts to impose SOX-style reporting requirements on mutual insurers won preliminary approval at NCOIL's meeting. North Dakota State Rep. George Kaiser, R-Bismarck, author of the resolution, called the new requirements an "effort to impose a solution for something for which there is not a problem."
NCOIL's Financial Services and Investment Products Committee passed the resolution unanimously, with members expressing a great deal of anger that NAIC regulators would seek to impose new requirements without a solid idea of the costs involved and without the approval of elected representatives.
During the NCOIL meeting, Michigan Deputy Insurance Commissioner Judy Weaver made the case for the NAIC's proposal, asserting the compromise represented a year of effort by industry and regulatory representatives. "We are trying to get a comfort level that we can rely on the financial reports that we get from mutual insurance companies," she said.
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