The NAIC recently adopted changes to its former Model Audit Rule to include certain provisions inspired, in part, by the Sarbanes-Oxley Act of 2002 (SOX). The new model also bears a new name, the Annual Financial Reporting Model Regulation (AFRMR). The changes to the former Model Audit Rule that were initially proposed by the NAIC would have incorporated many provisions directly from SOX, including §404 that was feared by many in industry at the time as not being cost-beneficial in light of then-recent experiences by public companies in their efforts to comply with SOX.
Invotex played a key role in the ensuing industry debate. An Invotex managing director was commissioned by the National Association of Mutual Insurance Companies (NAMIC) to perform a cost-benefit study that was presented to the NAIC/AICPA Working Group of the NAIC in June 2004. With the data from the study, industry and regulatory representatives were better able to hone in on the perceived cost drivers. As finally adopted, it is widely believed by regulators and industry alike that insurers will have more flexibility and be able to comply with the AFRMR at much lower cost as compared to what publicly-traded insurers encountered with SOX.
Invotex has unique perspective in insights with regard to the AFRMR, the foundation for which is our work with NAMIC; our constant monitoring of the NAIC/AICPA Working Group’s activities during the deliberations over the AFRMR; and our deep knowledge of the NAIC’s risk-focused examination process, a parallel initiative by the NAIC the intent of which is to dovetail with the AFRMR for an efficient regulatory examination process.
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