INDIANAPOLIS (May 12, 2006)—A bundle of changes caused an NAIC panel with key importance in progression of the NAIC’s Model Audit Regulation to postpone a planned vote that would have advanced the model to a superior committee.
Content in the model derived from the Sarbanes-Oxley Act of 2002 has made it controversial to NAMIC, which has targeted its provisions concerning internal accounting control as especially objectionable for reason of their cost.
Meeting in Atlanta Thursday, the Financial Condition Committee took testimony from NAMIC and other interested parties and accumulated a lengthy set of changes to text of the revised model. “It’s too early to vote today,” said committee chair and Virginia insurance Commissioner Alfred Gross.
Gross said a new draft of the Model Audit Rule, more formally known now as the “Annual Financial Reporting Model Regulation,” would be published Monday and that a vote might be taken on that new draft Thursday. Proponents of the model regulation with SOX content are known to want it voted out of the Financial Condition Committee so that it could be subject to a possible final vote during the NAIC’s June national meeting.
“It is extraordinary that the many detailed changes decided on Thursday would be part of the deliberations of a higher level committee like this one, rather than within a lower level working group,” said William Boyd, NAMIC’s financial regulation manager. “That this committee is engaged in such detailed work shows that the rush is on.”
From its debut in February, 2004, as a model embodying near verbatim content from the federal Sarbanes-Oxley Act of 2002, the model regulation has evolved via frequently abrasive deliberation between industry and regulators into a substantially mitigated version of its original version. Among changes voted Thursday for the pending model were the following:
Those changes and others of lesser importance received the committee’s unanimous vote.
In testimony to the committee Boyd and Neil Alldredge, NAMIC’s senior director of state advocacy, re-asserted that Congress had deliberately avoided making the Act apply to non-public entities, including mutual insurers. Boyd said that the model, if less burdensome than when originally proposed “will cost 2.5 to 3.0 times what it will save in avoided guaranty-fund assessments on surviving insurers.”
At the beginning of the committee’s Atlanta hearing Pennsylvania deputy commissioner Steve Johnson said, “It’s been a long process. What we have now is a good compromise.” He added that the positive assurance that insurer managements would have to make about internal accounting control provided “positive assurance to complete the solvency quilt.”
NAMIC has complained repeatedly to the regulator proponents of Sarbanes-Oxley content in state regulation that no assessment of where weakness in solvency regulation was ever made for these purposes and that the content was no more than expensive “comfort” for regulators.
Gross, the committee chair, left contingent whether the May 18 conference-call meeting would definitely include a vote on the new draft expected Monday. That leaves the possibility that the model regulation might not be considered by the superior executive and plenary committees until September.
Gross and others on the committee said they wanted a separate “Implementation Guide” for the model regulation to proceed along with the model itself. A draft of the “Guide” now exists, but it is not known whether this document will be ready simultaneous to the revised model.
For further information, contact
Rick Nelson, APR, CAE
(317) 875-5250 Tel
(317) 879-8408 Fax
William D. Boyd
(317) 875-5250 Tel
(317) 879-8408 Fax