The National Association of Mutual Insurance Companies (NAMIC) is encouraged regulators have decided not to transfer the complete internal control framework of Sarbanes-Oxley to state insurance regulation, but states the group will continue to oppose alternatives that would apply public company shareholder protections to non-ublic companies.
“While there is a long way to go in this debate, we are encouraged that regulators have been persuaded to pare back their original plan to subject non-public insurance companies to Sarbanes-Oxley type regulation,” said Roger H. Schmelzer, senior vice president of State and Regulatory Affairs. He said the questions of cost and applicability for what remains of the proposal would become more prevalent to principal regulators as it works its way through the NAIC process.
During the NAIC/AICPA Working Group session held at the recent NAIC meeting, Pennsylvania Deputy Commissioner Steve Johnson, chair of the sub-committee reviewing applicability of Title IV, reiterated that “full-blown SOX is off the table,” in reference to the internal control attestations by external auditors that were included in the original plan. NAMIC presented an analysis at the meeting that demonstrated first year implementation costs of $300 million to mutual companies, a ratio of eight dollars of expense for every dollar of potential maximum benefit, assuming elimination of all insolvencies.
Despite the progress made to mitigate 404 requirements, Schmelzer said his association’s members remain opposed to the concept of applying federal public company regulations to non-public insurance companies.
“The argument is incontrovertible,” Schmelzer said, citing congressional design of the federal Act to protect the interests of investors and to restore public confidence in the capital markets.
“Non-public insurance companies don’t have investors and do not participate in the capital markets,” he said. “Investor-oriented safeguards are the essence of the Sarbanes-Oxley Act and have absolutely no relevance to the situation of non-public insurers and insurance policyholders. I see no way insurance regulators can avoid this reality.”
Schmelzer added that existing solvency regulation, disclosure, reporting and examination are designed to protect insurance policyholders and a “state-based version of a federal investor protection law is not necessary to promote solvency.” He also noted that mutuals’ share of total insolvency costs has been only five percent of the industry total since 1991, despite representing more than 33 percent of total property-casualty premium. “There is no problem in the mutual industry to solve and regulators may be finally beginning to realize that.”