The proposed international accounting standard for insurance contracts needs critical amendments if it is to properly reflect the realities of the business, Insurance Europe said today
Commenting on proposals issued by the International Accounting Standards Board for permanent accounting standard for insurance contracts, the association said more work was needed to make them workable. The International Financial Reporting Standard 4 Phase II have been in development for three years.
Olav Jones, the deputy director general of Insurance Europe, said: 'The IASB has made considerable strides in addressing the concerns raised by insurers since the original draft in 2010.
'However, a number of critical areas require further development to appropriately reflect the long-term nature and the asset-liability management that are fundamental to insurance business.'
Among insurers' concerns is the provision for an 'other comprehensive income' model for changes in market interest rates on both insurance liabilities and related assets.
Insurance Europe said this OCI model should not be mandatory. Instead, insurers should have the ability to apply fair value either through the profit and loss account or through OCI. This would avoid possible accounting mismatches and inappropriate performance reporting for certain types on business.
The IASB's suggested requirements for the measurement of contract liabilities was also criticised as 'overly complex'.
Insurance Europe said it was 'essential' that IASB recognised the link between insurance liabilities and related assets in reporting performance.
Jones said: 'Treating asset and liability components in isolation will lead to inconsistent measurement and presentation, which will not reflect the true performance of the insurer.
'This would also defeat the aim of improving investors' understanding of the profitability and financial position of insurers.'
There is currently no final IFRS for valuing insurance contracts in the financial statements of insurance companies. IFRS 4, introduced in 2004, is only an interim standard to enable European insurers to be IFRS-compliant for their consolidated accounts.
