Single accounts for insurers

The International Accounting Standards Board has proposed a single accounting system for insurers that investors say could reduce the insurance industry’s cost of capital and boost stock prices, the FT reports.

The new rules have taken 12 years to draft.

James Dean, Ernst & Young’s Global Insurance Leader said: “Insurers will have greater certainty about how their organisation is viewed and evaluated by investors, regulators and other key stakeholders, reducing the cost of capital,” he said.

Peter Vipond, director of financial regulation and taxation at the Association of British Insurers (ABI) said: “We are pleased that the IASB aims to offer a modern approach based on current measures that may offer investors a clearer view of insurers’ obligations and performance, and of the asset/liability matching that underlies insurers’ business models.”

How the rules work

The FT summed up the regulations saying: “The IASB proposes insurance liabilities should be measured using a ‘building block approach’. This would see insurers making a best estimate of their liabilities plus a risk adjustment. However, to avoid a profit being recognised too early the amount of the liability will be increased to reflect the premiums charged to the customer. The best estimate and risk adjustment would also be re-measured at each reporting date.

The draft is open for comment until the end of November. It is expected to be in force in 2013 or 2014.