INDIANAPOLIS (Aug. 10, 2005)––Rep. Michael Oxley's recent acknowledgement that SOX is "excessive" in its regulation of public companies is another strike against extending its internal control provisions to mutual insurance companies, according to the National Association of Mutual Insurance Companies (NAMIC).
In a letter to principal insurance regulators Tuesday, NAMIC Senior Vice President for State and Regulatory Affairs Roger H. Schmelzer wrote that Oxley's comments as reported in the Financial Times last month are "important and timely" as the NAIC-AICPA Working Group prepares to make its recommendations to a superior National Association of Insurance Commissioners (NAIC) committee.
Oxley was quoted as telling the International Corporate Governance Network in London last month that the 2002 Sarbanes-Oxley Act passed to reform public company corporate accounting and governance practices was "excessive" due to the "hothouse atmosphere" that prevailed when the law was enacted. The FT article also reported that the congressman reaffirmed that the Act's purpose was to enhance "the strength of the U.S. capital markets" and saying that he would do things differently if he could re-write the law knowing what he knows now.
Schmelzer wrote that these comments echoed NAMIC's often-stated critiques and constituted "yet another strike against efforts to bring Sarbanes-Oxley into the insurance solvency realm." He pointed to opposition by the National Conference of Insurance Legislators (NCOIL) in March and a task force of the American Legislative Exchange Council (ALEC), which last week sent a resolution against application of SOX internal controls to mutual companies to its executive committee, as other setbacks to the effort.
"Considering that regulators have suggested that they will seek legislative approval of their proposal, outright opposition of state lawmakers to the application of Title IV internal controls to non-public insurance companies is not promising." Schmelzer wrote.
He called the proposal "a mismatch of public policy to desired objective," citing Oxley's statement that the original bill was intended to restore confidence in the capital markets while "solvency regulation exists to protect insurance policyholders." Schmelzer also reiterated findings from a NAMIC study that showed that for every dollar of maximum possible benefit (elimination of mutual company insolvencies) it would cost insurance companies eight dollars to comply with Title IV as originally proposed. "Now Congressman Oxley, a principal author of the statute, has confirmed that it is flawed, even in its original context of bolstering the capital markets."
NAMIC supports "a substantive debate appropriate for a major public policy initiative," Schmelzer said and while agreeing that companies of all sizes need adequate internal controls, he asserted that "mandatory requirements based on public company shareholder protection laws that will cost far more than the benefits they might possibly provide are not good public policy" and that their "transfer to an area for which it is not intended when the tools exceed what is needed in its original context will reflect badly on state insurance regulation."
Schmelzer also restated NAMIC's suggestion that regulators undertake a national, comprehensive evaluation of the cause of insolvencies; a review of existing solvency laws; followed by consideration of cost-effective remedies if they are warranted and encouraged inclusion of a "projection of the fiscal impact on state departments of insurance faced with enforcing these potentially massive new requirements."
The full text of NAMIC’s letter can be read on NAMIC’s website, NAMIC Online.
Posted: Wednesday, August 10, 2005 12:00:00 AM. Modified: Wednesday, August 10, 2005 8:46:30 AM.
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