Accounting changes will wipe billions from insurers’ values
US Financial Accounting Standards Board changes to insurers account will wipe millions off insurers value, Bloomberg reports.
Deferred acquisition costs are currently written off over years as if they were assets but the new rules will make them expenses to be written off immediately.
Bloomberg gives the example Lincoln National, claiming it has $10.5bn of “deferred acquisition costs,” without which the company’s shareholder equity of $9.1bn would disappear. The figure also is larger than the company’s stock-market value, now at $7bn, Bloomberg says.
The London-based International Accounting Standards Board is working on its own insurance project and has said it would take a more accommodating approach to policy- acquisition costs, Bloomberg reports.
Insurers would be required to expense them immediately. However, the IASB has said it would let companies record enough premium revenue upfront to offset the costs. That way, they wouldn’t have to recognise any losses at the outset. So far, the US board has rejected the IASB’s method.