New NAIC Subgroup To Issue Recommendations on the Future of U.S. Statutory Accounting and Financial Reporting

A new subgroup of the National Association of Insurance Commissioners (“NAIC”) charged with recommending the future of U.S. statutory accounting and financial reporting in light of industry and regulatory interest in adopting universal international standards held its organizational conference call meeting on April 21, 2010.

Given the scope of the task facing the new Statutory Accounting and Financial Reporting Subgroup (“Subgroup”), part of the NAIC’s Solvency Modernization Initiative Task Force (“Task Force”), Subgroup Chairman Albert Gross recommended that Subgroup members and interested industry parties devote the next 30 days to developing a preliminary list of issues to address.  Commissioner Gross assured those participating in the call that he was seeking only to compile a list of questions at this stage, not answers.

“We need to get issues and questions, overarching questions, identified,” said Gross, Commissioner for the Virginia State Corporation Commission Bureau of Insurance.

Two primary questions encompassed by the Subgroup’s charge were proposed for consideration:

• Given that the International Association of Insurance Supervisors (“IAIS”) and major jurisdictions are advocating the use of International Financial Reporting Standards for regulatory purposes (possibly with modifications), should the NAIC continue to maintain an entire codification of statutory accounting?
• Should regulatory financial statements be utilized for public purposes or should a separate public financial filing be required?

Commissioner Gross told members of the Subgroup not to feel limited only to these two broad issues, but to consider shaping their own.

While Commissioner Gross gave participants a month to develop the Subgroup’s agenda, ideas began flowing immediately.

One member said the Subgroup should examine the very purpose of statutory regulation – is it a tool for regulators or something else?  Another asked if it was premature to examine the question at all, given that the recommendations regarding the possible adaptation of U.S. accounting principles to international norms have not been finalized. 

An industry representative suggested the Subgroup should examine the difficulty and cost to U.S. businesses of such a transition, while another said it should consider the question of U.S. business and regulators “losing control” over accounting standards if the ultimate power to change them passed to an international body.

Robert Esson, an NAIC Senior Manager for Global Insurance Markets, who functions as a liaison between the NAIC and the IAIS, told meeting participants of the importance of working through the IAIS if they are to influence the International Accounting Standards Board and the U.S. Securities and Exchange Commission (“SEC”) regarding the possible U.S. adoption of international accounting rules. 

Mr. Esson noted that Julie Erhardt, Deputy Chief Accountant – International for the SEC, will address an international accounting summit in Washington D.C. on May 17 and 18. He suggested Subgroup members might consider making contact with her.

The next meeting of the Subgroup was not immediately set.

To view the April 21 meeting agenda, click here.  The Subgroup’s Web page can be accessed by clicking here. 

Should you have any questions or comments, please contact Colodny Fass. 

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