NAMIC will continue to advocate against the measure
(Washington, D.C. June 12, 2006)--In a plenary session held Sunday at its summer national meeting, the National Association of Insurance Commissioners (NAIC) voted to approve a proposal to apply elements of the federal Sarbanes-Oxley Act (SOX) to non-public insurance companies.
The new requirements are included in a set of changes to the Model Audit Rule that each state could adopt if lawmakers agree the provisions should be enacted. After two years of contentious debate, the proposal approved Sunday is significantly less burdensome and costly than earlier versions.
“We’re proud of our advocacy,” said Neil Alldredge, Senior Director of State Advocacy for the National Association of Mutual Insurance Companies (NAMIC). “Our careful scrutiny of the NAIC’s original SOX proposal exposed the flawed reasoning of its proponents and revealed the harm it could do. When the NAIC dismissed our suggestion that the proposal be subjected to a cost-benefit analysis, NAMIC commissioned a study that proved conclusively that the proposal would impose substantial costs on insurers, while providing no discernable benefit to policyholders. The proposal’s supporters responded in the only way they could: by narrowing the measure’s scope and eliminating its most onerous provisions.
“Still, the premise behind the modified proposal passed by the NAIC on Sunday —that accounting rules created by Congress to protect public company shareholders should also apply to non-public companies—is no more tenable now than it was when the original proposal was unveiled two years ago.
“We still believe the proposal is misguided and our opposition will continue in the states,” Alldredge said.
Indeed, while the regulator-driven plan has won the endorsement of a majority of regulators at the NAIC, its supporters now face their toughest hurdle—convincing state legislatures to incorporate the SOX proposal into their states’ version of the Model Accounting Rule.
“Legislator groups have made it abundantly clear that they don’t support what the NAIC has done. Both the American Legislative Exchange Council (ALEC) and the National Conference of Insurance Legislators (NCOIL) have adopted resolutions opposing this effort. Those actions strongly suggest that the proposal will not be well received in the states,” Alldredge said.
Legislative opposition is not limited to organizations comprised of state lawmakers. Last year, Congressman Mike Oxley (R-0H), the House Financial Services chairman whose name is enshrined in the Sarbanes-Oxley law, sent a letter to NAIC President Diane Koken noting that although Congress could have applied the new standards to non-publicly traded companies, it deliberately chose not to.
“This measure still has a long road to travel before it becomes law in any state,” Alldredge observed. “Legislators seem to understand the threshold questions we’ve been asking throughout this entire process: Why is this measure necessary, and what good will it do?” Our experience tells us that most legislators understand that the NAIC SOX proposal is a solution looking for a problem, and that compliance costs greatly outweigh any supposed benefits.”
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Posted: Monday, June 12, 2006 12:00:00 AM. Modified: Thursday, June 29, 2006 10:11:24 AM.
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