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The Actuary The magazine of the Institute & Faculty of Actuaries

ASB criticised on embedded value

The fallout from Equitable continued to be controversial as the UK Accounting Standards Board (ASB) prepared to specify changes to accounting for with-profits business for immediate implementation. Readers will recall that financial secretary Ruth Kelly charged the ASB with remedying the apparently unsatisfactory accounting vacuum described by Lord Penrose in his report on events at Equitable.

Although detailed proposals had not yet been published as we went to press, at least one major life insurer chose to get its retaliation in first. Scottish Widows chief executive Archie Kane criticised the ASB for making changes too fast. This may have been connected with the expectation that the proposals would centre on reflecting in embedded values the true ‘cost’ of capital required to support with-profits business. This would in turn be likely to reduce the room for manoeuvre in capital terms enjoyed by banks owning with-profits life insurers.