Leading life insurers have attacked plans for new accounting standards, saying they threaten to “shoehorn” life assurance into processes developed for the banking industry.
International standards are being developed for all industries to comply with European Union regulations to improve corporate reporting transparency and comparability from 2005. The International Accounting Standards Board is developing a new insurance standard but this is unlikely to be ready by 2005.
In the meantime, insurers are worried that insurance contracts will fall under a standard called IAS 39 which deals with the recognition and measurement of financial instruments. Applied to insurance companies, IAS 39 would require all financial liabilities to be recorded either at amortised cost or at fair market value for the first time.
However, Julian Roberts, finance director of Old Mutual, said: “This directive is primarily intended for banks.
“Rather than squeezing insurance companies into an accounting standard that does not address key issues for the sector, it would seem more sensible to give insurance companies an opt-out until there is a standard specifically covering insurance companies.
“The cost of implementing the detailed systems and reconciliations to comply with this standard would be very significant.”
Martin Jackson, Friends Provident finance director, agreed. “It is disappointing that we may be shoehorned into IAS 39,” he said, “when there is little clarity as to the detail of how insurance companies are meant to adopt the accounting process designed for the banking sector.”
Mike Biggs, finance director of Aviva, said: “The industry needs an insurance contracts reporting standard that is transparent, consensual, properly field-tested and provides practical guidance for insurers on how to meet the 2005 IAS financial reporting requirements. The current proposals don't have these characteristics.”
Andrew Palmer, finance director of Legal & General, said: “We would be concerned if any interim measures were to require substantive and expensive changes to current reporting, which would not be needed for the eventual standard.”
