Insurers warned of upheaval as convergence intensifies

The IASB recently released its ‘Preliminary Views on Insurance Contracts’
paper on IFRS 4, which addressed moves to hold insurers to exit value rules in
reporting the assets and liabilities of insurance contracts. The major challenge
for insurers centres on the fact that they would have to implement and
understand the impact of a new standard on systems, data, pricing and capital

James Dean, IFRS practice leader for Ernst & Young’s Global Insurance
Centre believes that the implications would be quite significant for insurers
because they would have to change the focus of their finance functions ‘quite
markedly’: ‘It’s going to be a money issue and a data issue. Calculating all of
this is going to be an expensive task. There’s a cost implication of putting
these models in and making them robust. It will require liabilities to be valued
using explicit and unbiased predictions of future cash flows, probability
weighted and discounted to take into account the time value of money and the
risks inherent in the cash flows being valued.’

Current insurance-contract accounting suffers from divergence between
insurers in different countries, E&Y said. The many existing accounting
models that remain available to insurance companies under IFRS 4 often result in
the reporting of liabilities and assets measured on inconsistent bases.

E&Y broadly backed convergence efforts believing that the level-playing
field sentiment had merit , but warned that it needed to be applied carefully:
‘What the IASB is doing is very much in alignment with what they’re trying to do
in terms of convergence, but there’s a lot of concern around how reliable this
will be,’ said Dean.

‘Exit value is a good measure in some but not all cases. In the insurance
industry you’re trying to imagine a transaction with a secondary party that
doesn’t exist because it’s a sector that has no secondary market.

Dean highlighted intricate mathematical templates used to calculate some
values as being particularly onerous.

He added that it was vital to reach the right conclusion with the insurance
contracts as it would lay down a marker for convergence efforts: ‘The insurance
project is in many respects pushing the boundaries of current international
accounting practice. This has very big implications for valuing all liabilities.
It will impact on a lot of other industries.’


Late payments cost UK £20bn a year

Poor payment practice is costing UK business £20bn a year, according to
research commissioned by payments group Prompt Payer. According to the
Federation of Small Businesses statistics, one in four businesses go insolvent
due toinvoices being paid late. Data from credit ratings group Experian showed
companies take eight days longer to pay invoices than when the Late Payments Act
was introduced in 1998.UK Payment Index and European Commission figures have
also discovered that at any given point, nearly 50% of all invoices are overdue,
resulting in thousands of businesses filing for bankruptcy and a loss of 450,000
jobs each year.

Esporta FD walks

The £330m refinancing of health club Esporta faced collapse as its FD Michael
Ball and chief executive Neil Gillis resigned from the company. Reports said
that Société Générale was seeking to syndicate the £330m funding package it had
provided for Esporta, following its acquisition by Buckingham Securities for

Penthouse settles fraud charges

Adult magazine publisher and entertainment group Penthouse International has
settled accounting fraud and financial reporting violations, US regulator the
Securities and Exchange Commission has revealed. As part of the settlement,
former Penthouse executive Charles Samel and former shareholder Jason Galanis
also agreed to each pay $60,000 (£30,000). Samel and Galanis settled without
admitting or denying any wrongdoing. Penthouse International was the former
holding company which owned Penthouse, the adult magazine, as well as having
film, online content and entertainment club interests. The magazine is now
published by Penthouse Media Group, formerly known as General Media.

Coffee FD to step down

Simon Drysdale, FD of Coffee Republic, will resign from his position at the
end of July. His decision to step down comes in the wake of a boardroom shake-up
at the end of last year,which saw the franchise’s co-founder Bobby Hashemi
ousted from his role asexecutive chairman.

FD quits before even tasting the cakes

AIM-listed cake maker Inter Link Foods will have to search for a new FD after
Brendan Hynes, the man who accepted an offer in December to join the company,
changed his mind. Hynes is currently the group finance director at Nichols, the
manufacturer of fruit cordial Vimto, but was meant to join Inter Link in March.

However, following a takeover approach for Nichols, Hynes said this meant he
had not been able to give a definite start date. He has now decided to stay at
Nichols. Hynes would have been replacing Chris Thompson, the former finance
director at Inter Link, who stepped up to become chief executive last year.

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