Monolines face accounting overhaul

US ‘monoline’ insurers face recognizing liabilities sooner under new
accounting rules proposed by the US Financial Accounting Standards Board.

The move means the insurers will have to recognize a liability when there is
evidence of deterioration in the insured product, rather than when it actually

The move means so-called ‘monoline’ insurers will have to bring forward
potential bad debt issues in their accounts.

Monolines insure bonds, meaning they were exposed to many of the bond
problems associated with the US sub-prime crisis.

The new rules were announced late last week. Bond insurers also will be
required to disclose securities on their watch lists and provide more
information about risk management.

Monoline shares suffered as a result of the moves.

The change ‘is particularly timely in light of recent concerns about the
financial health of financial guarantee insurers, and will help bring about much
needed transparency and comparability to financial statements,’ said Mark
Trench, the project manager for the new rules.

Further Reading:

the Bloomberg story

Related reading

Fiona Westwood of Smith and Williamson.