Regulators Seeking New Ethics Disclosure from Senior Managment

November 22, 2006

With inception in 2007, insurers filing the National Association of Insurance Commissoners’ (NAIC) annual statement will be subject to a new interrogatory on existence and applicability of codes of ethics.

Originating in the NAIC’s recent “raise-the-bar” effort on integrity of financial reporting, the new interrogatory will be included in both quarterly and annual reporting and focuses on what is required of senior officers of the insurer, typically the chief executive officer, principal financial officer, principal accounting officer, or other persons performing those duties, according to a written statement by the National Association of Mutual Insurance Companies (NAMIC).

The new interrogatory would first be required with quarterly statements for the first quarter of 2007 that are filed by May 15.

“This new interrogatory had been submitted for addition to the annual and quarterly statements at about the same time that the original Sarbanes-Oxley (SOX) proposal was floated,” said William Boyd, NAMIC’s financial regulation manager. “We were able to successfully object then, knowing this would come up again when the many issues concerning applicability of SOX material to non-public companies were resolved. That is now the case, and the new questions passed in March.”

The new questions include whether senior officers are subject to a code of ethics and whether it includes the following standards:

Requirement for honest and ethical conduct, including conflicts of interest between personal and professional relationships.
Accurate, compliant and understandable filing of regulatory reports.
Compliance with applicable laws and regulations. Prompt internal reporting of violations to an appropriate person. Accountability for adherence to the code of ethics. Sought also is whether amendment has been made in the reporting period and whether any part of the code has been waived for any of the specified officers. Explanation is required, if such amendment has been made.

“The nature of the new interrogatory tracks the oft-repeated statement that the insurer’s “tone at the top” is finally the determinant of whether business is done ethically and financial reporting honestly,” said Boyd. “No one argues with that.”

“We know that most companies that do NAIC reporting already have codes of ethics. For some it may be a matter of having to tune them up for re-signature by senior management, assuming they wish to meet what the interrogatory seeks,” Boyd said.

Source: NAMIC

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