State regulators considering new internal accounting controls for mutual insurers have failed to heed the advice of two key congressmen, according to the National Association of Mutual Insurance Companies (NAMIC).
U.S. Reps. Michael Oxley, R-Ohio, and Richard Baker, R-La., in a letter last September to former National Association Of Insurance Commissioners (NAIC) President Diane Koken said benefits to policyholders must be established before the states go about applying any reporting requirements of the federal Sarbanes-Oxley Act regulating financial and accounting disclosure.
Mr. Oxley chairs the House Financial Services Committee, while Mr. Baker chairs the key subcommittee that deals with insurance issues.
"We do not believe this caution was observed in the proposal now pending," wrote Financial Regulation Manager Bill Boyd in a letter to the NAIC on Friday.
With no basic assessment of where existing solvency regulation may be weak, imposition of the internal control prescriptions now contemplated in the "Annual Financial Reporting Model Regulation" cannot be justified and should not be approved, Mr. Boyd asserted.
That regulation, pending before the Financial Condition Committee, is a re-write of the NAIC's existing "Model Audit Rule."
NAMIC also reminded the committee Congress did not intend that Sarbanes-Oxley requirements, including what Mr. Boyd termed its most burdensome section, apply to nonpublic entities such as mutual insurers.
The NAMIC testimony further noted, "The alternate proposal now under consideration…was solicited by regulators from the industry and formulated largely by those in the industry who are friendly to the concept of SOX [Sarbanes-Oxley] in state regulation."
All other industry trade groups with the exception of NAMIC have lined up in support of the NAIC's less restrictive version of the original audit rule model that regulators had proposed.
The NAIC Financial Condition (E) Committee is due to consider the model regulation May 11.
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