By Ben Berkowitz
AMSTERDAM, Sept 24 (Reuters) - U.S. insurance companies may get some flavor of what it's like to be an investment bank if new rules on how they value contracts comes into force.
U.S. and international accounting rulemakers are considering forcing insurers to regularly recalculate the value of their expected losses on insurance contracts as their assumptions or actual losses change.
The rules could force insurance companies to spend much more money on systems and professionals that can estimate the value of insurance contracts covering everything from life to property, a top accounting partner in PricewaterhouseCoopers' insurance practice said.
The new rules could also introduce more fluctuations in insurers' earnings, similar to the way fair value accounting rules created more fluctuations in investment banks' earnings.
The primary accounting standard for U.S. insurers uses locked-in assumptions on cash flows from the date of inception of the contract. There is no similar standard for insurers reporting under the international IFRS standard.
But the U.S. Financial Accounting Standards Board and the International Accounting Standards Board are looking to help investors better understand the risks on insurance companies' books.
While the two groups have been working toward a converged standard, there are some differences between them, most notably in how much discretion to give companies when adjusting values.
'What we're telling people is no matter how the differences are resolved, you're going to need a lot more modeling capabilities,' PricewaterhouseCoopers' Donald Doran told Reuters in an interview.
The IASB is leaning toward allowing individual insurers to adjust their insurance liabilities based on how uncertain they think the timing and magnitude of the cash flows are. The FASB believes that this company-based discretion will make financial statements among insurers difficult to compare.
In both cases, changes to the probable liabilities result in higher or lower earnings.
A final IASB standard is due in mid-2011, though it could potentially slip into 2012. The FASB is looking for comments on its current proposal, and will hold a roundtable meeting to discuss its proposal in December.
(Reporting by Ben Berkowitz. Editing by Robert MacMillan) Keywords: INSURERS MODELING/ (ben.berkowitz@thomsonreuters.com; +31 20 504 5011; Reuters Messaging: ben.berkowitz.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
AMSTERDAM, Sept 24 (Reuters) - U.S. insurance companies may get some flavor of what it's like to be an investment bank if new rules on how they value contracts comes into force.
U.S. and international accounting rulemakers are considering forcing insurers to regularly recalculate the value of their expected losses on insurance contracts as their assumptions or actual losses change.
The rules could force insurance companies to spend much more money on systems and professionals that can estimate the value of insurance contracts covering everything from life to property, a top accounting partner in PricewaterhouseCoopers' insurance practice said.
The new rules could also introduce more fluctuations in insurers' earnings, similar to the way fair value accounting rules created more fluctuations in investment banks' earnings.
The primary accounting standard for U.S. insurers uses locked-in assumptions on cash flows from the date of inception of the contract. There is no similar standard for insurers reporting under the international IFRS standard.
But the U.S. Financial Accounting Standards Board and the International Accounting Standards Board are looking to help investors better understand the risks on insurance companies' books.
While the two groups have been working toward a converged standard, there are some differences between them, most notably in how much discretion to give companies when adjusting values.
'What we're telling people is no matter how the differences are resolved, you're going to need a lot more modeling capabilities,' PricewaterhouseCoopers' Donald Doran told Reuters in an interview.
The IASB is leaning toward allowing individual insurers to adjust their insurance liabilities based on how uncertain they think the timing and magnitude of the cash flows are. The FASB believes that this company-based discretion will make financial statements among insurers difficult to compare.
In both cases, changes to the probable liabilities result in higher or lower earnings.
A final IASB standard is due in mid-2011, though it could potentially slip into 2012. The FASB is looking for comments on its current proposal, and will hold a roundtable meeting to discuss its proposal in December.
(Reporting by Ben Berkowitz. Editing by Robert MacMillan) Keywords: INSURERS MODELING/ (ben.berkowitz@thomsonreuters.com; +31 20 504 5011; Reuters Messaging: ben.berkowitz.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.