Task Force Reviews Derivatives Regulations for Insurance Companies

By Ann E. Spaulding

An NYSSCPA task force recently issued a comment letter to the New York State Department of Insurance on draft regulations for insurance companies seeking to take advantage of new legislation that gives them greater authority to invest in derivatives.

The legislation is effective July 1, 1999, and requires New York licensed insurers investing in derivatives to obtain a report from independent CPAs that makes an assessment of internal control over derivative transactions. The task force, consisting of members of the Society's Insurance Companies and Agencies Committee and representatives of firms that audit insurance companies, focused primarily on the part of the regulations that addressed internal control over derivatives.

The task force concluded that the draft regulations did specify the form the report on internal control over derivatives should take. Some practitioners in the industry interpreted the law as requiring an examination of internal control over derivatives in accordance with the profession's attestation standards. Others thought that an agreed-upon procedures engagement would be the most effective way for the Insurance Department to achieve the legislative intent.