Navigating First-Time Compliance with the Model Audit Rule

Key Takeaways:  

• Crossing the MAR threshold requires management attestation, expanded audit committee oversight and documented evidence supporting internal control over financial reporting. 
• MAR differs from SOX in scope and structure. While enforced at the state level and focused on statutory reporting, MAR often applies at the legal-entity level and creates distinct governance expectations for insurers. 
• Organizations that assess applicability and strengthen governance before the first filing cycle are better positioned to meet regulatory requirements and sustain long-term compliance. 

Why First-Time MAR Compliance Is a Milestone 

For insurers crossing the threshold for the Model Audit Rule, or MAR — formally the Annual Financial Reporting Model Regulation (NAIC Model No. 205) — compliance is more than a new filling requirement. It marks a shift in how statutory financial reporting, governance, and internal controls are structured and evidenced. 

For many organizations accustomed to SOX, MAR may appear familiar — but its focus on legal-entity structure and state-level enforcement creates distinct compliance considerations. Unlike SOX, which applies to public companies and focuses on GAAP reporting, MAR is enforced at the state level and centers on statutory financial statements. While the objectives are similar – integrity, transparency, and accountability – MAR operates within the insurance regulatory framework and often applies at the legal-entity level, creating distinct governance and control expectations. 

While MAR has been adopted in most U.S. jurisdictions, many insurers historically operate outside of its scope. As premium volume grows or organizational structures evolve through mergers, acquisitions, or expansion, companies may be subject to the rule for the first time. Once an insurer crosses the threshold, it triggers new governance, documentation, and attestation obligations that require proactive readiness planning. Management must formally attest to the effectiveness of internal control over financial reporting, audit committees expanded oversight responsibilities, and documentation and evidentiary standards over the performance of internal controls increase significantly.  

For first-time filers, MAR is not simply an added report – it formalizes accountability.  

Understanding the Model Audit Rule 

Established by the National Association of Insurance Commissioners (NAIC), MAR outlines governance and financial reporting standards for insurers that meet defined premium thresholds. Its core objective is to strengthen the reliability of statutory reporting and require management accountability for internal control over financial reporting.  

Key provisions include: 

• Audited statutory financial statements: Annual financials must be audited by an independent certified public accountant. 
• Auditor independence requirements: Restrictions limit certain non-audit services provided by the external auditor. 
• Audit committee oversight: Insurers must establish an audit committee with oversight of the financial reporting process. 
• Management’s report on internal control over financial reporting: Management must evaluate and attest to the effectiveness of internal controls related to statutory reporting. 
• Corporate governance disclosures: Company executives must document and report on governance practices that promote oversight and transparency. 

Understanding these components early allows companies design a compliance roadmap that aligns with regulatory expectations while minimizing disruption. 

Determining Applicability: When MAR Becomes Mandatory 

In general, MAR applies to insurers with $500 million or more in direct and assumed written premiums, though thresholds vary by state and can include additional criteria such as group-level considerations. 

Structural transactions are a common trigger for MAR. Mergers, acquisitions, divestitures, new pooling arrangements, assumption reinsurance, or expansion into new states or lines of business can shift an insurer into scope. These events can alter which legal entities are responsible for statutory reporting and which must document and attest to internal control over financial reporting.  

Companies are often caught off guard because regulatory implications lag business strategy. Growth initiatives may be managed operationally, while governance and control requirements are addressed later. Organizations may also assume existing SOX or enterprise controls extend to insurance entities, only to identify gaps once MAR applies. 

Governance Expectations Under MAR 

For many first-time MAR filers, establishing or strengthening the audit committee is a critical early priority. MAR requires audit committees to oversee the external audit process, monitor internal control deficiencies, and maintain independence from management. 

Newly subject companies often need to: 

• Reassess board composition to establish adequate independent representation. 
• Formalize audit committee charters and reporting structures that define oversight and escalation responsibilities. 
• Provide training for board members and senior executives on MAR requirements and expectations.  

Governance gaps often become visible during the first compliance cycle. As organizations document processes and define control ownership, informal practice — such as manual adjustments, spreadsheet dependencies, or undocumented reviews — must be formalized and supported with evidence.  

The first-year timeline can also expose weaknesses in oversight mechanics. Missing committee charters, unclear escalation paths and inconsistent policies across legacy entities becomes more difficult to defend once management is required to attest to the effectiveness of internal control over financial reporting.  

MAR does not necessarily create new governance principles. Rather, it converts informal practices into documented, supportable structures with clear accountability.  

How MAR Changes the Role of Management and Internal Audit 

MAR shifts control over financial reporting from a function supported by audit to one owned by management. Executives must define control ownership, establish a repeatable evaluation process, and be prepared to support conclusions with documented evidence.  

This shift requires coordination across finance, internal audit, IT, and risk. Controls over statutory reporting, system access, change management, and key financial judgements must be clearly designed, documented, and tested in advance of the filing cycle.   

MAR also reshapes the structure and frequency of audit committee engagements. Reporting on internal control status, deficiencies, and remediation process becomes more formalized, reinforcing the committee’s oversight of governance and management accountability.  

Conclusion 

First-time MAR compliance is both a regulatory obligation and an opportunity to strengthen governance discipline. Crossing the threshold signals a new level of accountability for statutory reporting, governance, and internal control over financial reporting.  

Successful implementation requires disciplined project management, strong internal controls, and close coordination across finance, risk, IT, and internal audit. Early planning allows organizations to identify control gaps, clarify ownership, formalize oversight, and build stakeholder confidence before the first attestation. 

In today’s complex regulatory environment, first-year MAR compliance is more than a filing requirement—it’s a step toward long-term stability, transparency, and trust with policyholders, regulators, and shareholders.