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You Won't Find Any Padding In Insurers' Books

Readers Report


I'd like to take issue with your commentary "Letting the air out of insurers' overblown assets" (Finance, July 8). As you know, accounting principles require that equity-based securities be carried on an insurer's books at market value, debt instruments at amortized value, and certain other assets--including real estate--at the lesser of cost or current value.

Switching to a current-market-value methodology, as the author suggests, is an interesting idea as it could provide a more accurate assessment of a firm's liquidation value.

Unfortunately, a firm's liquidation value is generally of little concern. Both generally accepted accounting principles and statutory accounting principles are designed, for good reason, to value a firm as an ongoing concern rather than as one about to be liquidated.

Further, the National Association of Insurance Commissioners' prescribed annual statement forms already provide an accurate assessment of an insurer's financial strength.

It cannot be argued that the insurance industry is immune to insolvencies. Recent history bares this truth well. Just like many banks and savings and loan associations, poor management or investment decisions have jeopardized the financial soundness of some insurers. Nonetheless, insurance companies as a whole have the strongest balance sheets in the financial industry, and their strength is measured conservatively, accurately, fairly, and in the public's interest--points that the commentary failed to mention.

Charles D. Eckerson

Regional Accounting &

Controls Manager

Nationwide Mutual Insurance Co.

Raleigh, N. C.

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