Insurer finance execs call for reporting harmony - Deloitte

A growing number of insurers are calling for a single global accounting framework, according to a survey commissioned by Deloitte.

This is because of an increased need for financial reporting transparency and consistency, according to the survey, which was conducted by the Economist Intelligence Unit.

The survey found nearly half of insurers want to see a convergence of the two main accounting regimes used by global insurance companies.

Some 47% of respondents said they want the USA to abandon its national accounting standard, US Generally Accepted Accounting Principles (US GAAP) in favour of International Financial Reporting Standards (IFRS). However, a complete set of IFRS rules for insurance liabilities does not exist yet and the insurance liabilities element of US GAAP has been earmarked for a radical reform since 2008, Deloitte said.

Proposals to address this situation and substantially re-write accounting standards commonly used by insurers for liabilities and investments are being finalised jointly by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB).

Despite significant progress, Deloitte noted the boards have struggled to reach an agreement on all issues. This has resulted in a slip in timetable for implementation of what could be heralded as the first set of global accounting rules for insurance companies.

Given the potential consequences these rules will have on insurance companies, more than half of respondents rated the uncertainty around the timeframe for implementation of the new IFRS for insurance contracts (IFRS 4 Phase II) (51%) and for financial instruments (IFRS 9) (52%) as their biggest concern. However, many insurers are stuck in a ‘wait and see’ mode, with 56% saying they will wait until the standards are final before starting their projects to implement the new rules.

Francesco Nagari, global IFRS insurance leader at Deloitte, said: “The extended uncertainty surrounding the completion of a converged insurance project has hampered insurers’ desire to prepare for this major implementation challenge.

“Several insurers in our survey said they will be able to look at the business impact of the standards only from next year. This implementation will be a considerable undertaking in terms of IT systems and processes, not to mention the effect on investors’ perception of insurers’ profitability.”

Nagari added that there are obvious benefits to a single set of accounting standards and that if the implementation is well-managed, insurers could use the increased transparency and consistency to their advantage.

“The new rules will level the playing field for investors who would be able to compare insurers globally and with other companies in different sectors,” Nagari said. “Today’s insurance reporting is fragmented and it creates a barrier for general investors to consider insurance shares. This results in a higher cost insurers have to pay when they want to raise capital and the new accounting rules could address this issue. Indeed, many insurers are considering whether the benefits justify the costs.”

He added: “Insurers have pushed long and hard for an accounting regime that meets their needs. Now they just need to make sure it delivers the benefits.”