The International Accounting Standard’s Board will shortly publish its
discussion paper on the second phase of its insurance contracts project. This is
the latest stage in what has been a long and intensive process, which will
culminate in a new accounting rule for insurance contract accounting as early as
The ABI believes there are a number of overriding requirements that this
standard must meet. It must be principles-based to provide insurers with the
flexibility needed to account for the different products and legal requirements
existing around the world.
Any model adopted should also reflect the economics of the insurance business
and the way insurers manage risk. The ‘asset/liability accounting mismatch’
problem, where assets and insurance liabilities are accounted for on different
bases should also be resolved.
This standard must also recognise that insurers, in addition to preparing
general purpose financial statements, are required to satisfy prudential
supervisors as to their continued solvency.
To get the most benefit it is desirable that there should be convergence of
insurance accounting with the US to ensure the maximum amount of comparability
between insurers in different jurisdictions. However, convergence should not be
an end in itself and should not be pursued if doing so would prevent the IASB
from introducing a principles-based standard that reflects the economic reality
of insurance business.
The Phase two standard should not stop insurers disclosing value-based
measures as supplementary information. Value-based measures are considered to be
important by many users of accounts, such as investment analysts. They provide a
measure of the expected profits over the lifetime of the product from sales of
new business in the current reporting period and from maintenance of the
in-force book of business. The ABI supports the European embedded value
principles for reporting value-based results, particularly for life insurance
business. However, other measures should be permitted as long as they are
It’s vital the IASB gets its standard right. The discussion paper represents
the first formal opportunity for the industry to give its views on the IASB’s
proposals and influence the debate on what the final standard will look like.
Insurers need an accounting standard that reflects the economic and business
model of the industry, ensures comparability of firms across countries and
improves the transparency of insurers’ accounts.
John Breckenridge is assistant director of financial reporting at the
Association of British Insurers
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