Mary Keegan, the Accounting Standards Board chairman, has so far declined to state whether this practice will be banned but she has warned insurers that’anticipating profits’ has no place in the accounting rule books.
Speaking at a seminar on financial regulation last week, Keegan said she had already raised the issue with the Association of British Insurers and added that the ASB will release a consultation paper on the subject within the next month.
She said: ‘I wouldn’t be putting this on my list to mention [at the seminar] if it was not something we were very firmly in debate about with the ABI.’
Insurers routinely count estimated future profits as part of their capital base when preparing accounts – a method of accounting which has been slammed by insurance analysts as a way of flattering insurers’ capital strength amidturbulent markets.
The practice of recognising future profits is customary within the insuranceindustry but there is no UK accounting standard which specifically governsit.
Instead the industry drafts a recommendation which is then rubber-stamped by the ASB.
But following the host of accounting scandals in the US, the ASB is lookingto tighten up on grey areas within its jurisdiction.
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