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Financial Reporting Model Based on SOX Unjustified, Says NAMIC

INDIANAPOLIS (April 24, 2006)-State regulators considering an "alternate proposal" for internal accounting control have failed to heed the caution from U.S.Representatives Michael Oxley and Richard Baker that any extension of the Sarbanes-Oxley Act of 2002 to state regulation be reconciled with additional benefits to policyholders, according to the National Association of Mutual Insurance Companies (NAMIC).

"We do not believe this caution was observed in the proposal now pending," wrote Financial Regulation Manager Bill Boyd in a letter to the National Association of Insurance Commissioners (NAIC) on Friday. With no basic assessment of where existing solvency regulation may be weak, imposition of the internal control prescriptions now contemplated in the "Annual Financial Reporting Model Regulation," cannot be justified and should not be approved. That regulation, pending before the NAIC's Financial Condition (E) Committee, is a re-write of the NAIC's existing "Model Audit Rule."

Congressmen Oxley and Baker included their caution in a letter last September to former NAIC President Diane Koken.

NAMIC also reminded the committee Congress did not intend that SOX, and content from its most burdensome section, apply to non-public entities, including mutual insurers.

The National Conference of Insurance Legislators (NCOIL) approved a resolution on the Application of Federal Sarbanes-Oxley Standards to Sate Insurance Regulation in February that echoed this view, stating:

  • that existing insurance regulation as powerful and adequate:
  • costs of content from the Sarbanes-Oxley Act are expensive; and
  • provisions of the Sarbanes-Oxley Act intended for insurers should be authorized only by legislators and not imposed administratively.

"State regulators' initiative to borrow from the [Sarbanes-Oxley] Act or to create a symmetry in solvency regulation between public and non-public insurers, is objectionable to the extent that what is borrowed is not shown to be efficient for the purpose of solvency," Boyd wrote. "No basic assessment of where existing solvency regulation may be weak has been conducted to justify the added regulation now contemplated."

The NAMIC testimony further noted, "The alternate proposal now under consideration … was solicited by regulators from industry and formulated largely by those in the industry who are friendly to the concept of SOX in state regulation."

View NAMIC's letter

The NAIC Financial Condition (E) Committee will consider the model regulation May 11.


For further information, contact
Rick Nelson, APR, CAE
(317) 875-5250 Tel
(317) 879-8408 Fax
rnelson@namic.org

Posted: Monday, April 24, 2006 12:00:00 AM. Modified: Monday, April 24, 2006 4:18:43 PM.

317.875.5250 - Indianapolis  |  202.628.1558 - Washington, D.C.

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