The National Association of Mutual Insurance Companies (NAMIC) said a proposal by regulators to set financial disclosure requirements for mutual insurers still fails to meet the “rationality” test.
At issue are provisions taken from the federal Sarbanes-Oxley Act requirements for publicly-traded companies.
“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 D. Boyd. “It was meant for public companies and it simply costs too much.”
While NAMIC continues to oppose the proposed reporting measures, the American Insurance Association and the Property Casualty Insurers Association of America have for the most part gotten behind them as the best alternative to what the regulators previously proposed.
The NAMIC comments address a December 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 unveiled 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 Mr. 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 Mr. 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,” Mr. Boyd concluded.
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