The Kansas City, Mo.-based NAIC is working to develop a Model Regulation Requiring Annual Audited Financial Reports.

Also due for their attention is the election of a successor to Ernst Csiszar, the South Carolina insurance commissioner who abruptly resigned as NAIC president to join the insurance industry lobbying group, Property Casualty Insurers Association of America. NAIC Vice President Jim Poolman, the North Dakota insurance commissioner, is seen as the likely choice.

This past week's discussion of the audit regulation addressed a provision setting the qualifications of an independent certified public accountant.

As now worded, an independent certified public accountant would not be qualified for an insurer if the company's chairman, president, chief executive officer, controller, chief financial officer, chief accounting officer or any other person of equivalent position was employed by the accountant during the year preceding an audit.

The text adds that the requirement applies to partners and ?anyone who helps set the scope or reviews others work on the audit.?

During the discussion, Deborah Whitmore, a partner with Ernst & Young, New York, noted that the wording could be interpreted to extend to junior accountants and staff rather than the partner responsible for the audit.

Regulators responded that the intent is that the provision apply to partners and senior managers in charge of the audit. And, they added that it was not the intent that an employee brought in to answer a technical question would be included under this requirement.

The model audit regulation would reflect requirements in the Public Company Accounting Reform and Investor Protection Act (Sarbanes-Oxley) of 2002, which affect the format for Generally Accepted Accounting Procedures financial reporting.

These requirements, which include management signing off on internal controls, would be required for statutory accounting purposes.

Steve Broadie, vice president-financial with the Property Casualty Insurers Association of America, Des Plaines, Ill., suggested to the regulators that language be included to stress the importance that the process be uniform.

Other points that regulators and insurers are discussing include the degree of independence needed for an audit committee.

Insurers asked commissioners if a provider were on an audit committee, even if it is a state requirement, whether that would violate the independence requirement because they were receiving claims payments.

There also was a discussion of whether definitions that are being used for the model regulation would need to be different than definitions in Sarbanes-Oxley to reflect the focus on insurers.

The regulators also are talking over whether an exemption for insurers with direct written and assumed premiums of less than $25 million should be raised to a higher cap.