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Life insurers face "challenging" accounting and regulatory changes

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The life insurance industry will face “challenging” accounting and regulatory changes, according to a new study by Conning Research and Consulting, which indicates these changes will present an operational risk and add to an already significant number of challenges. The U.S. and European Union accounting regimes are converging and moving to a principles-based structure. At the same time, insurance regulations – including capital solvency testing – are becoming more risk-focused and will include sophisticated stochastic modeling, according to a press statement issued by the insurance industry research firm.

“The transition to a new accounting regime will present a large operational risk to life insurance companies. Insurers must prepare for the coming changes so that they not only comply with the new accounting regime, but also gain a strategic advantage from the transition and resulting structure,” said Stephan Christiansen, director of research at Conning. “For those companies that successfully implement the new accounting regime through a comprehensive ERM framework, management will have the opportunity to take a broader view of risks, and take appropriate actions to help control the risks. The resulting measurements can be more risk sensitive, leading to better business planning and a more efficient use of capital.”

The Conning Research study is entitled “Upcoming Life Industry Regulatory and Accounting Changes: Implementing Through ERM.”

For more on life insurance industry trends, revisit the December 2008 issue of Boomer Market Advisor.