The chair of the NAIC/AICPA working group differed, saying that it would add value to regulatory oversight of insurance companies.

Doug Stolte, a deputy commissioner with the Virginia department, said that better internal controls are needed and a quarter-billion-dollar insurer insolvency in Virginia, Reciprocal of America, due to "problematic financial reporting" proves it. ROA wrote hospital professional liability and workers' comp business.

At issue are provisions in the Model Regulation Requiring Annual Audited Financial Reports (model audit rule) that would require management to file a report on internal compliance procedures.

The report would include statements of responsibility from management for establishing and maintaining adequate internal controls; identification of what was used to evaluate the effectiveness of internal controls; how effective the controls are; and an attestation from the independent certified public accountant that audited the company's financials on the internal controls.

An exemption for small companies that for the moment would be measured by premium dollars is in the early stages of discussion, according to Mr. Stolte.

Trade groups roundly objected to the provisions. Counted in that number were the American Council of Life Insurers, the National Alliance of Life Companies, the National Association of Mutual Insurance Companies, and the Property Casualty Insurers Association of America. Companies that raised concerns included Everest Re and Delta Dental of Michigan.

NAMIC's Bill Boyd, financial regulation manager, said that insurance regulation already has requirements in place to ensure integrity in financial reporting and also has protections for policyholders.

The cost of these requirements, according to Mr. Boyd, would be 50-100 percent greater than current costs, with first-year costs being much higher. He asked that the working group consider these costs in relation to any benefits that might be accrued.

Insurers already have far more extensive reporting requirements than other publicly traded companies, according to Steve Broadie, PCI assistant vice president-financial legislation and regulation. Regulators have not shown that reporting standards are lax, he added.

Kevin Griffith, representing Delta Dental of Michigan, told regulators that dental insurers typically have a two percent profit margin in a good year. Added expenses and pressures on margin from this requirement could have a "detrimental effect" on ancillary insurance lines such as dental and vision coverage, he continued.