INDIANAPOLIS (Sept. 19, 2005)—An SEC advisory committee’s complaints are the foundation of what is expected to be grant by the agency of a second, one-year delay for small, publicly owned companies’ compliance with costly requirements of the Sarbanes-Oxley Act of 2002.
The expected extension and reasons for it closely track the separate but parallel deliberation now under way in the NAIC in which NAMIC has asserted that requirements concerning internal accounting control found in Section 404 of the Act are costly and burdensome, especially for small insurers.
A Wall Street Journal story this week noted that knowledgeable persons at the SEC predicted reprise of the SEC’s March ruling that registrants with $75 million or less of revenue need not meet the Section 404 requirements until 2006. The expected ruling would obviate need for filing under that section until July 2007.
Non-public insurers, among which mutual companies are most numerous, are not regulated by the SEC, but in emulation of the federal agency the NAIC has proposed to add SOX-like requirements for reporting on internal accounting control to state insurer solvency regulation. Mutual insurers would then be affected.
The NAIC’s proposal for the added financial reporting similar to SOX’s Section 404 has been contentious, with NAMIC questioning the added cost for all companies and emphasizing the disproportionately high cost of compliance for small mutual companies.
“That the SEC has again extended compliance with Section 404 for small public companies should be observed by the NAIC,” said William Boyd, NAMIC’s financial regulation manager. “The SEC’s advisory committee of small, public companies has noted to the SEC how disproportionately expensive compliance is for small companies. Given this expense and the extent of existing insurer solvency regulation, it is only rational that the NAIC greatly trim what it has proposed, especially for small companies.
He added, “The SEC’s actions and the observations of its small company committee resonate with NAMIC. Our own study of costs and benefits of SOX Section 404 show how burdensome Section 404 is and how little is to be gained in the mutual insurer context.”
NAMIC’s study mutual insurers showed internal costs of compliance for Section 404 to be about $100,000 for companies with premium up to $100 million and additional, external costs to be slightly higher. The SEC small company committee showed that small companies might spend more than $800,000 for compliance.
For further information, contact
Rick Nelson, APR
Founded in 1895, NAMIC is a full-service national trade association with more than 1,400 member companies that underwrite 43 percent ($196 billion) of the property/casualty insurance premium in the United States. NAMIC members account for 44 percent of the homeowners market, 38 percent of the automobile market, 39 percent of the workers’ compensation market, and 31 percent of the commercial property and liability market. NAMIC benefits member companies through advocacy, public policy and member services. Information about the association, its member companies and the property/casualty insurance industry can be found at NAMIC Online. www.namic.org.