New accounting rules would be fundamental change for insurers
Revised proposals for the accounting for insurance contracts released yesterday have received a lukewarm response, according to the Financial Times.
The International Accounting Standards Board (IASB) proposals were constructed following a public consultation on plans first published in 2010, and are a move towards a common insurance reporting framework.
The Exposure Draft seeks to make it easier to understand how insurance contracts affect a firm’s financial position, performance and cash flow by changing the presentation and measurement of contracts.
KPMG’s global IFRS insurance leader Joachim Kölschbach said: “This would be the biggest ever financial reporting change for most insurers – far surpassing the adoption of IFRS. The extent of change would be far-reaching, and there is no question that insurers’ financial statements would look very different compared with today.
“This would be a new world for insurance – a world in which financial reporting metrics and stakeholders’ perceptions of insurers would change,” he said.
Under the changes, insurers would be required to value their liabilities using more up-to-date calculations. The proposals would also harmonise standards of insurance accounting throughout the European Union and other markets that use IFRS.
PWC’s global accounting services financial instruments leader Gail Tucker said that the proposals would “fundamentally change the accounting by all issues that issue insurance contracts”.
Insurance Europe said the proposals went “a long way towards addressing [the sector’s] significant concerns”.
“For insurers, the critical issue is to appropriately reflect the presentation of current value changes in performance reporting in order to make insurers’ financial position and performance comprehensible to investors. This should reduce insurers’ cost of capital and facilitate their support of long-term investment in Europe,” the trade body said in a statement.
The IASB will consult on the proposals until 25 October.
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