The National Association of Mutual Insurance Companies (NAMIC) will advocate its positions on corporate governance, market conduct, securities ratings, and credit scoring during the National Association of Insurance Commissioners (NAIC) Fall National Meeting in Anchorage, Alaska, Saturday through Tuesday.
NAMIC said in a statement that it will continue to object to NAIC efforts to transplant Sarbanes-Oxley corporate governance content into state regulation. NAMIC’s opposition was joined by other trade associations and companies, and the original proposal is now being re-evaluated. In its objection NAMIC stressed that Sarbanes-Oxley was directed toward the relationship between investors and investees and not to the policyholder-insurer relationship, which is already very heavily regulated.
Exemption thresholds may be part of discussions conducted Monday by the NAIC/AICPA Working Group, the body currently concerned with Sarbanes-Oxley content in state insurance regulation.
Such discussion would presumably take place only in relation to work of subgroups concerned with Titles II and III of Sarbanes-Oxley, which, respectively, address auditor independence and audit committees’ responsibilities for integrity of financial reporting. The NAIC’s proposal for adding Sarbanes-Oxley elements to state solvency regulation now contains a threshold of $25 million in premium revenue for application of such strictures, saving very small insurers from application of content from Titles II and III of the Act.
Regulators who are part of the industry-regulator-accounting profession membership of the Title II and III subgroups have shown some interest in raising the exemption threshold to $100 million in premium revenue. NAMIC had suggested $500 million.
What the NAIC/AICPA Working Group has not yet taken up in its re-evaluation of the original proposal to adopt content of the Sarbanes-Oxley Act is the costly and burdensome internal-controls and attestation strictures of the Act’s Title IV. Working Group chair Doug Stolte, a Virginia deputy commissioner, has said that content of Title IV would be considered at some time after consideration of content from Titles II and III.
“We know that the Working Group will receive minutes of proceedings of the Title II and III subgroups, and this may lead to more general discussion of exemptions,” said William Boyd, NAMIC’s financial regulation manager. “Chairman Stolte has thus far kept his word that the re-evaluation of the original will be deliberate, and this might fit in at this time but would presumably not relate to Title IV content.”
NAMIC will ask state insurance regulators to reconcile the newly amended NCOIL Market Conduct Surveillance Model Act with the current NAIC Model Act on Examinations. The NAIC is scheduled to vote on the NCOIL model during its plenary session on Sunday.
“A preliminary review by NAMIC suggests the language in the NAIC model is incongruent with the NCOIL model, in that the NAIC model language, in effect, provides regulators with unfettered discretion to conduct market conduct examinations of insurers anytime and at any cost,” NAMIC State Affairs Manager David Reddick wrote to Oregon Insurance Administrator Joel Ario in a Sept. 2 letter. Ario is chair of the Market Regulation and Consumer Affairs (D) Committee, which has been in charge of reviewing the NCOIL model.
Reddick added that NAMIC does not believe this was the intention of the drafters of the NCOIL model, nor the D Committee, which has emphasized a new market conduct paradigm emphasizing market analysis and targeted market conduct examinations over more routine, comprehensive examinations.
“NAMIC believes this (review) is a prudent step to take before the NCOIL possibly is considered in state legislatures next year,” Reddick said.
The full text of NAMIC’s letter to Ario can be read at NAMIC Online at:
At the same time, NAMIC also has sent a letter to NCOIL officials urging them to re-open debate on their amended market conduct model.
In reviewing the amended NCOIL model, adopted on July 16, NAMIC has identified five amendments it would like to see changed in the model. They include:
· Placing a reasonable limitation on the data collection authorized by the NCOIL model;
· Establishing a reasonable limit on market conduct examination fees;
· Clarifying that the NCOIL model authorizes only targeted exams for cause, not general purpose exams;
· Including stronger self-evaluative privilege language; and
· Assuring that due process rights for insurers is being examined.
Reddick said that if NCOIL did not re-open debate on its model, NAMIC was prepared to offer its amendments in any state that might consider introducing the NCOIL model in 2005.
The full text of NAMIC’s letter to NCOIL can be read at NAMIC Online at http://www.namic.org/pdf/040902NCOILLetter.pdf
An industry-sponsored plan to allow qualified insurers to rate securities in their own portfolios will be discussed Sunday by the NAIC’s Valuation of Securities Task Force.
The proposal is the final one in the “New York Plan” to diminish the NAIC Securities Valuation Office’s (SVO) securities-rating activities. The “New York Plan,” so designated because it was sponsored by the State of New York, has resulted in insurers having a permanent exemption from SVO filings for securities that have a rating from reputable, private securities ratings firms.
The “New York Plan” would affect insurers’ treatment of portfolio securities that do not have a rating from a private ratings firm. Rather than filing for a rating with the SVO, insurers with an approved ratings operation could rate their own securities. This practice is allowed in the banking industry, which has no office comparable to the SVO.
NAMIC, in an Aug. 12, letter to Mike Moriarty, chair of the Task Force, said it had no objection to the plan that would let those insurers demonstrating competence perform their own ratings of
portfolio securities. It is thought that as many as 50 large insurers might want to meet criteria (also at issue) for doing such self-rating.
Regulators seem dubious about allowing such self-rating, fearing that some insurers might fudge in the instance of solvency pressure.
The full text of NAMIC’s letter to Moriarty can be read at NAMIC Online at http://www.namic.org/pdf/040908moriarty.pdf
The NAIC’s Credit Scoring Working Group is scheduled to vote on the proposed Best Practices Regulatory Interpretation Guide. Originally, the guide proposed language that changed the meaning of the “sole use” restriction found in the NCOIL model and now adopted in many states.
NAMIC objected strongly to this attempted change and as a result the language has been changed to more closely align with the accepted interpretation of “sole use,” which is that “sole use” means “only” and that a numeric threshold would violate the restriction.
“If the working group adopts this guide in Anchorage it should be seen by other regulators as just that-a guide,” said NAMIC State Affairs Director, Neil Alldredge. “It does not have the force of law nor is it a platform for changing or creatively interpreting current state law.”