Last week, the Financial Accounting Standards Board came out with a decision on how companies should treat the costs related to the terrorist attacks on Sept. 11.
Life insurers financially impacted by claims from the World Trade Center disaster say the directive will not change the way they account for claims on their income statement.
Directive 01-10 from the FASB’s emerging issues task force (see www.fasb.org) says the economic effects of the events are “so extensive and pervasive” that it would be impossible to present a complete picture of the disaster’s financial ramifications by including costs under an extraordinary item line in the income statement.
Consequently, the Norwalk, Conn.-based FASB says it is better not to use the extraordinary line item. An extraordinary line item recognizes gains and losses on the income statement after an operating subtotal and before the net income total.
Fred Donner, a partner with KPMG, LLP in New York, says there will be no impact for insurers. Although a “terrible tragedy with significant losses,” Donner says that from an insurer’s perspective, it is no different from any other catastrophe. “This is what they [insurers] do. They provide coverage for losses.”
James Harrington, a PriceWaterhouseCoopers partner in Florham Park, N.J., says normal claims would be part of expenses recognized in the portion of the income statement addressing operations.
If companies have expenses directly related to the disaster such as a destroyed office, then that would be broken out as an unusual item under the expense part of the income statement, he says, and it would be explained in management’s discussion. Such treatment would be reflected in operating income, while an extraordinary item would be reflected in the net income number, Harrington explains.
Insurers contacted by National Underwriter say they will recognize claims as an expense incurred during the course of business.
Holly Sheffer, a spokeswoman for Met Life Inc., New York, says the company has taken that position all along. “It is clear to us that as an insurance company part of our business is paying out claims,” she says.
William Werfelman, a spokesman for New York Life Insurance Company, says it will appear on the benefits and expense payments line of the income statement and will also be part of management’s explanation of the financial statements.
The estimated claims cost for New York Life will be in the $100 million range extended over a period of time, he adds.
Werfelman says New York Life is estimating several hundred claims. To date, the company is still accumulating information on reported deaths by gathering information from its agents and other sources, he adds. As of Sept. 28, 45 deaths of New York Life policyholders had been documented, he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.