NAMIC: New Mexico's Proposed Audit Rule Too Burdensome

NU Online News Service, Dec. 4, 2009, 2:45 p.m. EST

The National Association of Mutual Insurance Companies is voicing strong criticism of a model audit rule for insurance companies proposed by New Mexico Insurance Department officials.

In a written statement and through testimony at a hearing, a NAMIC regional official called the proposal a "radical and imprudent departure" from the National Association of Insurance Commissioners' Model Audit Rule.

NAMIC's testimony was made at a public hearing before New Mexico's Public Regulation Commission's Insurance Division on the proposed regulation.

Christian J. Rataj, NAMIC's Western state affairs manager, charged at the hearing that the proposal "fundamentally departs" from the NAIC Model Audit Rule in a "number of significant and concerning ways."

Instead, he testified, New Mexico PRC-ID should adopt the entire NAIC model auditing law "because it was thoroughly debated and analyzed over a two-year evaluative process that considered how to best promote sound corporate governance practices and regulatory transparency without imposing excessive and unreasonable economic burdens on small insurance carriers."

Specific concerns cited by Mr. Rataj include the fact that the proposed rule "would impose needless administrative costs and burdens on small insurers and adversely impact market competition and the affordability of insurance for consumers."

Of particular concern to NAMIC is that the proposed audit regulation would eliminate the NAIC MAR's $500 million direct written and assumed premium threshold for requiring the filing of the Management's Report of Internal Controls Over Financial Reporting, he said.

It would also create "an impractical and unworkable requirement" that domestic insurers report "Significant Deficiencies in Internal Controls," which is a much stricter and more burdensome standard than the NAIC model rule requirement of reporting only "Unremediated Material Weaknesses," he testified.