Financial reports created using proposed international accounting standards may look strange at first, but they give clear information about how insurance contracts are really doing, Patrick Finnegan says.
Finnegan, a member of the International Accounting Standards Board (IASB), London, who once worked for Moody’s Investors Service, New York, has written about the proposed IASB insurance contract standards that were released in July in an IASB insurance standards proposal commentary posted on the site of IASB’s parent, the Internationl Financial Reporting Standards Foundation, London.
Today, a typical U.S. insurance company would report on its performance by showing a figure for premiums and deposits; figures for other types of revenue, such as investment revenue; a total revenue figure; and a net income figure.
IASB wants to replace the list of revenue figures with a list showing profit or loss margins on the major components of the company’s overall profit, or loss.
The company might report on underwriting results by showing the company’s risk adjustment margin; the “residual margin,” or the difference between the original expected contract values and the initial premiums collectedex; the underwriting margin; an experience adjustment; and a figure for “changes in estimates.”
The company then would give the net interest and investment result, which could be broken down into investment income and interest on insurance liability.
A company also would report changes in insurance liability by showing the