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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurance analysts support IFRS, prefer EEV

Research by PricewaterhouseCoopers reveals insurance analysts are generally supportive of IFRS phase I as a step in the right direction to enable listed insurers in the EU to prepare financial statements under one set of accounting principles from 2005.

Insurance phase I (IFRS 4) was introduced as an interim standard to deal with the immediate challenge of implementing IFRS for insurance contracts while the International Accounting Standards Board (IASB) continues to work towards a long-term phase II solution.

Unsurprisingly, analysts are concerned that in the meantime there will be a lack of comparability between insurance company accounts, an aspect that will be addressed in phase II. On assessing the current interim standard, 70% of respondents rated IFRS as being a marginal improvement, with only 12% claiming significant improvement on existing practice.

Analysts supported the efforts of the industry to build consensus around European embedded value (EEV) reporting, with the prospect of many companies producing supplementary EEV information in their reports next year; 80% of analysts rated EEV as being more useful than IFRS phase I. Moreover, almost all analysts surveyed believe EEV will improve the comparability of European life insurers’ financial reporting.

However, the discussions revealed some reservations about how EEV, and in particular the risk margins, will be applied in practice. Underlying this was a certain amount of scepticism, which also emerged in relation to IFRS, about how as one analyst put it, ‘companies always seem to arrive at the same number whatever the basis for evaluation’.