An alternate proposal to impose Sarbanes Oxley Act provisions on mutual insurers, “errs in applying to mutual insurers costly and burdensome internal accounting control measures not demonstrated to preclude or materially reduce insurer failures,” according to the National Association of Mutual Insurance Companies (NAMIC).
“Fundamentally, regulation should be rational—it should fit the nature and behavior of the regulated entities—and cost no more than is necessary for that goal. This proposal fails both tests.” said NAMIC Financial Regulation Manager William Boyd “It was meant for public companies and it simply costs too much.”
The NAMIC comments address a Dec. 5, 2005, draft of amendments to the NAIC Model Audit Rule that embodies elements from the Sarbanes-Oxley Act of 2002. They articulate NAMIC’s continuing reservations with efforts by some state regulators to emulate Sarbanes-Oxley content. An original proposal to do so that debuted in February 2004, was succeeded by what has been called an “alternate proposal” that represents a possible compromise between regulators and parts of the insurance industry.
NAMIC acknowledges that the “alternate proposal” results in significantly diminished costs for implementation. Most put the cost of the alternate at $80 million using basic NAMIC data of first-year implementation costs for mutual insurers. This is still approximately two and one-half times the estimated saving in avoided guaranty-fund assessments to surviving insurers. “The alternate, because of this undesirable ratio, continues to be something NAMIC cannot support,” said Boyd.
NAMIC also reiterated in the comments made to the NAIC/AICPA Working Group the concern of some state legislators that the original proposal was unwarranted and inappropriate, given the intent of Congress and the views expressed by state legislative groups.
“State legislators concerned with insurance regulation have affirmed NAMIC’s objections. It is our understanding that these legislators have the same or similar reservations about the alternate proposal now being considered,” wrote Boyd.
“NAMIC’s member insurers have an extraordinary stake in these deliberations, given the proposed addition to state regulation of content from a federal Act intended for application to investor-owned insurers,” Boyd concluded.
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