Subgroup Deaf To Questions On Section 404 Cost
INDIANAPOLIS (Feb. 10, 2005)––A NAMIC official has once again challenged regulators to explain the substantive reasons for adding Sarbanes-Oxley (SOX) audit-related measures to state insurance regulation and to justify the projected cost of the measure.
William Boyd, NAMIC’s financial regulation manager, told an NAIC subgroup meeting Wednesday in Orlando, Fla., that it had never directly stated a reason for grafting SOX onto state regulation. Pennsylvania regulator Steve Johnson had started deliberations on the topic by touting them as obviously appropriate. “How can it be a bad thing to have management make representations about internal control?” Johnson told the packed hearing room.
On behalf of its mutual membership—the largest segment of non-public insurers—NAMIC has repeatedly told the NAIC and key regulators that SOX is not needed for state regulation.
Johnson went on to say he was doubtful that cost-benefit analysis could be applied to addition of the SOX 404 measures. However, Boyd told the subgroup, “An estimate can be made of the cost of failures through the guaranty-fund system …and be compared with the costs of requiring non-public companies to implement this.”
A Pennsylvania deputy insurance commissioner, Johnson is chair of what is known as the NAIC’s “Title IV” Subgroup now engaged in examining application to non-public insurers of what solvency regulators believe is necessary for tightening the scrutiny of and disclosure about those insurers’ internal control. Specifically in play with Johnson’s subgroup is whether the federal Act’s Section 404 requirements for a) management’s assertions on adequacy of internal control and b) separate attestation on those assertions by the company’s auditor, should be transplanted into state regulation.
“As a result of Wednesday’s hearing and despite the rhetoric,” Boyd said, “the subgroup may pare down full-blown SOX Section 404 requirements in any transfer to state regulation, but the regulators will have to be pushed, kicking and screaming, to such resolution.” Boyd singled out the currently proposed exemption level of $25 million in premium as “a strong candidate for substantial liberalization.”
Posted: Thursday, February 10, 2005 12:00:00 AM. Modified: Thursday, September 08, 2005 3:48:40 PM.
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