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American Financial to Change Annuity Performance Reporting

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American Financial Group Inc. has decided to change the way it reports on the performance of its Great American Life Insurance Company annuity operations, to adjust for the effects of new financial reporting rules on net income.

Accounting bodies and regulators are starting to push publicly traded insurers to include the effects of ups and downs in many items items in their U.S. Generally Accepted Accounting Principles (GAAP) net results.

(Related: Earnings: AIG, Athene, AXA Equitable, Primerica, FGL, IHC, HC2, Triple-S)

Under the new GAAP reporting rules, life insurers are supposed to include ups and downs in the current “fair value” of fluctuations in the value of, derivatives, the value of changes in assumptions about benefits obligations, and other items in GAAP net earnings.

American Financial says it will handle the new requirements by changing the way it defines the components of its core annuity operating earnings, starting with GAAP financial reports for the second quarter.

American Financial says it will report annuity operating earnings that “will exclude the impact of items that are not necessarily indicative of operating trends, such as: the impact of fair value accounting for fixed-indexed annuities (FIAs), unlockings, and other items related to changes in the stock market and interest rates.”

American Financial will also change how it reports on the cost of funds for its indexed annuity operation.

“The company believes these changes will provide investors with a better view of the fundamental performance of the business, and a more comparable measure of the annuity segment’s business compared to its peers,” the company says.

“Core operating earnings will continue to also exclude realized gains and losses on investments,” the company says.

— Read Brighthouse Posts $1.3 Billion Q1 Net Derivatives Loss, on ThinkAdvisor.

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