The National Association of Mutual Insurance Companies (NAMIC) announced it will oppose an amended regulator proposal to add federally-styled internal control measures to state insurance regulation, according to its president.
NAMIC President and CEO Charles M. Chamness said that his board unanimously voted to continue its work against implementation of mandated internal controls and reporting procedures. Earlier this week an NAIC committee approved a new plan that had been drafted, but NAMIC chose not to participate in its crafting.
“Our members favor voluntary, common-sense internal controls but do not support a regulator mandate that can be changed at some later date,” said Chamness.
He said that the fundamental issue of shareholder versus policyholder protection has been left unaddressed by the new proposal. “A key principle in our opposition is that Congress deliberately chose not to subject non-public companies to SOX,” Chamness asserted. “SOX was designed to benefit public company investors.”
Though regulators set a $500 million compliance threshold that may reduce costs to policyholders by two-thirds, Chamness said “the hurdle of cost-effectiveness has yet to be met.”
An analysis by the Virginia department of insurance based on an earlier NAMIC study of the original NAIC proposal suggests that the cost to policyholders generated by implementation might be about $90 million in the first year of compliance, or a ratio of three dollars of policyholder premium revenue for every dollar of maximum potential benefit (defined as the elimination of all mutual company insolvencies).
But, citing the NAMIC analysis of the original proposal that showed a first-year cost of about $300 million and an 8:1 cost benefit ratio, Chamness asserted that while “regulators may have reduced the projected costs, they have yet to justify the benefit.” He added that regulators have been unable to explain why the enormous solvency regulation powers with which they are already charged are not sufficient.
“All insurers are subject to a rigorous regulatory regime that is designed to address the unique features of the insurance enterprise; there has been no credible demonstration of regulatory failure requiring extension of SOX to non-public insurers, who account for less than five percent of all insurance company insolvencies,” he said.
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