IASB interim insurance accounting standard 'will increase volatility'.

(From Insurance Day)

Byline: Adrian Ladbury

THE interim insurance accounting standard issued for consultation yesterday by the International Accounting Standards Board (IASB) will lower reported premiums, increase volatility in results, raise taxation liabilities and lead to significant systems and labour costs, according to insurance consultants.

IASB's Exposure Draft ED 5 Insurance Contracts marks the first concrete step towards the introduction of an entirely new accounting regime for most of Europe's listed insurance companies by which liabilities and assets will ultimately be valued at market rate rather than historical cost.

The draft published yesterday kicked off the process with a number of major changes for Europe's life and non-life insurance companies. These included the outlawing of equalisation reserves, reclassification of most pension and investment "insurance" contracts as non-insurance and derecognition of reinsurance and other financial smoothing mechanisms.

Insurance and reinsurance lobbying groups such as the Comit' Europ'en des Assurances (CEA) have lobbied hard to try to slow the process and give insurers some breathing space but to little avail to date. The consultants' analysis of ED 5 suggests the insurers may have valid grounds for concern.

"The introduction of the interim standard will raise some major issues for insurers to grapple with," said Hitesh Patel, partner in KPMG's financial ...