Compromise SOX Proposal Adopted At NAIC Meeting

Chicago - The debate over the application of Sarbanes-Oxley (SOX) provisions to non-public insurers came one step closer to a solution yesterday when the National Association of Insurance Commissioners (NAIC)/ American Institute of Certified Public Accountants (AICPA) Working Group's Title IV Subgroup adopted a proposed alternative supported by both insurers and regulators at the NAIC Winter Meeting held here this week.

"We are extremely pleased with the Working Group's action regarding SOX," said Robert Zeman, senior vice president, insurance regulatory affairs for the Property Casualty Insurers Association of America (PCI). "For nearly two years, regulators, industry leaders and interested parties have been working on a solution that meets regulators' need to have additional assurance on the effectiveness of insurer internal controls without imposing undue or costly mandates on insurers. Today, the NAIC took important steps toward accomplishing that objective."

PCI played a key role in developing the proposal, which not only addresses the stated needs of the regulators, but also allows the industry to meet those needs in a cost effective manner. The proposal requires company management to affirm responsibility for internal controls and verify that those controls are effective, but does not require the use of a specific internal control framework or related documentation requirements. It also requires disclosure of any unremediated material internal control weaknesses, and a statement from the company's external auditors if none were discovered during the normal course of their audit.

The proposal does not include mandatory, expensive internal control documentation requirements, nor does it require external auditors to perform any additional work on internal controls beyond that required by the auditing profession's own standards. The proposal also exempts smaller companies writing less than $500 million in annual premium and provides relief to entities that are already SOX compliant.

"PCI and other proposal supporters feel that the solution is both adequate and effective," added Zeman. "It addresses regulators' concerns without imposing burdensome mandates on insurers. Many of the details will be worked out in yet to be completed implementation guidance, and the industry is comforted by regulator statements that this guidance will not be used to change the proposal or add additional requirements."

The proposal will now be referred to the parent NAIC/AICPAWorking Group, which will receive and hold the proposal pending completion of an implementation guide and final work on Model Audit Rule amendments concerning SOX Titles II and III.

SOURCE: PCI