Adding Sarbanes-Oxley Section 404 content to state insurance regulation would cost almost eight times the maximum potential benefit to mutual insurance companies if all insolvencies were eliminated, according to a study by mutual insurers.
The survey of member companies of the National Association of Mutual Insurance Companies revealed that first year implementation of the National Association of Insurance Commissioners proposal would be about $300 million for all mutual property/casualty insurers, an amount equal to the costs of more than the most recent 20 years of mutual insolvencies.
Thomas Finnell, Jr., CPA of Finnell & Company, PLLC, conducted the study for NAMIC. The release of the study comes as the nation’s state insurance commisisoners are gathering for the NAIC summer meeting in Boston to discuss whether to impose SOX requirements on insurers as well as other issues.
NAMIC President Charles M. Chamness encouraged the state regulators to listen to the SOX presentation at the upcoming NAIC meeting.
“All parties share an interest in promoting insurance company solvency,” Chamness wrote, adding that the proposal pending before the NAIC is “unnecessary, ill-advised and horrendously expensive.”
Also included in the analysis are National Conference of Insurance
Guaranty Fund (NCIGF) statistics showing that the share of total insolvency costs attributable to mutual companies has been only five
percent of the industry since 1991, despite representing more than
33 percent of the total property-casualty premium.
NAMIC expressed doubt that imposition of Section 404 by the NAIC would be able to eliminate insolvencies, noting that “nearly all failures
result from insufficient financial reserves or inadequate rates, not
misreported financial statements.”
NAIC has sent the summary to all state insurance regulators, state legislators and governors.
The entire NAMIC analysis will be presented to the Title IV subgroup
on Monday in Boston. It is available
at http://www.namic.org/pdf/05NAMICCostBenefitStudy.pdf.
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