The current set of insurance accounting proposals now under consideration by international accounting standards setters are fatally flawed and unworkable, a representative of the North American insurance industry said last week.
Speaking at the AICPA/IFRS Foundation Conference in Boston, Jerry de St. Paer, executive chairman of the Group of North American Insurance Enterprises (GNAIE) said the current proposals and timelines advanced by the International Accounting Standards Board (IASB) contain fatal flaws that will introduce “significant non-economic volatility for long duration life contracts and will obscure underwriting results for the property/casualty insurance business.”
In particular, he pointed out that the proposals affecting long-duration life insurance contracts do not reflect economic reality and results will be much less transparent to users.
De St. Paer added that the Financial Accounting Standards Board (FASB) and investors do not support risk margins for short duration property/casualty insurance contracts.
Further, he said, the overwhelming majority of investors do not support the introduction of discounting to the non-life measurement model.
“Discounting mixes underwriting and investing and reduces the comparability and understandability of financial statements,” he said.
Even if these issues are resolved, de St. Paer said, there are too many outstanding decisions to assess the quality of the standard.
“Analysts, investors, regulators as well as the insurance industry internationally continue to express their concerns with the process and direction of the development of this standard,” he said.
De St. Paer also noted that the current proposals value quality over timelines and urged standards setters to take a step back and assess the quality of the resulting financial statements, re-expose the entire IASB standard and conduct field testing to allow users to understand the new measurement model.
He stressed that insurers want a single, high quality global accounting standard for insurance contracts.
However, de St. Paer said, “The current proposals are not close to being acceptable to investors or preparers.”