The international body that sets accounting rules used in more than 110 countries including Britain, Japan and Germany said insurance companies should standardize bookkeeping to give investors better data.
The proposed change would require, for the first time, a single standard that insurers in all jurisdictions could apply consistently to their contracts, according to a statement today from the International Accounting Standards Board in London.
“A fundamental review of insurance accounting was long overdue, with current practice resulting in financial information that is impenetrable to all but the most expert of users,” IASB Chairman David Tweedie said in the statement.
The proposal follows a discussion paper published in 2007 as part of a plan to make standards reflect the true value of contracts, the IASB said. When the organization was created in 2001, there were no such international financial reporting requirements for contracts, according to the statement.
The draft is open for public comment until Nov. 30.
Peter Vipond, director of financial regulation and taxation at the Association of British Insurers, said current insurance accounting methods have been inconsistent and haven’t adequately captured “the economics of the industry.”
“We are pleased that the IASB aims to offer a modern approach based on current measures that may offer investors a clearer view of insurers’ obligations and performance,” Vipond said in an e-mailed statement.
David Law, an insurance partner at PricewaterhouseCoopers LLP in London, said the rule will result in one of the biggest challenges to the industry in recent years.
“The impact will be felt across the sector and will require insurers to conduct a complete overhaul of their systems and performance reporting,” Law said today in a statement. “These proposals will hit industry resources hard, at a time when they are already scarce.”