Academic journal article Journal of Accountancy

Insurance Industry Bill Introduced; Accounting Provisions Criticized

Academic journal article Journal of Accountancy

Insurance Industry Bill Introduced; Accounting Provisions Criticized

Article excerpt

The Federal Insurance Solvency Act of 1992 (HR 4900), introduced by House Energy and Commerce Committee Chairman John Dingell (D-Mich.), for the first time would impose federal regulation on the insurance industry. The bill also includes auditing and accounting provisions that critics contend would erode private-sector control over standard setting.

Pointing to failures in the insurance industry in recent years--including seizures by state regulators of Mutual Benefit Life Insurance Co. and Executive Life Insurance Co.--Dingell said, "We intend to correct obvious deficiencies in solvency regulation before an industrywide crisis occurs."

But according to Tom Higgin-botham, American Institute of CPAs vice-president--government relations, the AICPA strongly opposes the accounting and auditing provision in HR 4900. "The bill would supplant, without justifiable cause, the current system of private-sector standard setting that has served the financial markets well for the past 50-plus years," said Higginbotham. He also termed the legislation "extremely objectionable" because it would establish a mechanism that non-CPAs could use to qualify to perform audits of insurers and reinsurers.

Under the proposal, a new Federal Insurance Solvency Commission (FISC), modeled after the Securities and Exchange Commission, would be required to establish, by regulation, accounting standards "to ensure accurate and informative reporting on the financial condition of federally certified insurers and reinsurers. …

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