In his remarks, Mr. Stolte noted that the NAIC's Model Audit Rule (MAR), the regulation in which the SOX changes are being contemplated, is an NAIC accreditation standard. Ten states have adopted it by statute and 28 by regulation, he told legislators. Twelve states have adopted components of MAR through the NAIC's annual statement filing instructions. He added that the working group would encourage those 12 states to implement it by legislation or regulation.

During his presentation, Mr. Stolte noted that the SOX changes offered "the best practices regulators believed should apply to all insurers" for auditor independence, corporate responsibility and internal controls over financial reporting.

The changes would give management ownership and responsibility for internal controls, he noted.

One of the reasons this is important, he continued, is because policyholders pay premiums to transfer risk of loss and do not believe they are assuming risk that their claims will not be paid. And, he noted that the effectiveness of regulators' monitoring abilities is dependent on high quality financial information filed by the insurer.

He also pointed out that many guaranty funds impose dollar limits per claimant and annual caps on assessments.

He outlined reasons why the changes are being opposed, including current "extensive reporting and regulatory requirements" as well as cost, and the fact that insurers have not been involved in recent corporate scandals.

Regulators at the NAIC, based in Kansas City, Mo., are working on amendments to the Model Audit Rule in an effort to include internal control and reporting requirements in SOX.

Property-casualty insurers, including the National Association of Mutual Insurance Companies, headquartered in Indianapolis, and the Property Casualty Insurers Association of America, based in Des Plaines, Ill., are expressing concern over the proposed changes.

The ACLI board of directors approved the proposal which seeks to balance cost and time considerations of companies with regulators' concerns regarding internal control procedures.

Points of the proposal include:

o Current SEC registrants will be required to perform little, if any, additional work.

o No requirement for an external audit.

o Small company exemption from most requirements.

o Filing at the enterprise level or legal entity, based on management's discretion.

o Risk-based approach toward identifying scope of documentation and testing.

o Extended timeframe for implementation.

The current NAIC proposal does offer an exemption for companies with $25 million of premium or less. Regulators say that they are willing to be flexible on the amount needed for an exemption.

Jim Connolly is Senior Editor for NU Life & Health Magazine