The major insurers have largely completed reporting their annual results, providing a timely reminder of the diversity in accounting practices that currently exist around the globe in the insurance industry. As the reporting season unfolds, KPMG urges the International Accounting Standards Board (IASB) to continue their momentum toward finalisation of a new standard for insurance accounting.
Mary Trussell, insurance partner at KPMG, comments “The current lack of consistency in the way insurers report their financial results makes it difficult for analysts and investors to analyse and compare insurers’ performance. In an era where there is tough competition for capital, the complexity and lack of comparability of insurers’ financial reports puts the industry at a disadvantage to other sectors, where the financial position of a company is easier to compare with its peers. A new international standard for insurance accounting would mean a big improvement in transparency and consistency with benefits for both investors and the industry.
This debate has persisted for more than 14 years and the IASB has never been so close to sorting this issue. Although great progress has been made, KPMG encourages the IASB to keep the conclusion of the insurance project in their line of sight. Currently the IASB has four critical and high priority projects on its agenda, with insurance in this group. All four projects are being deliberated together with the US FASB with the aim of achieving convergence between IFRS and US GAAP.
With respect to the insurance project, we urge both Boards to do their utmost to find converged solutions to the remaining issues on the table. However, in the end, if agreement cannot be reached within the next few months on all remaining issues, the IASB needs to press on with the issuance of its final proposals. The insurance industry just cannot be without an international insurance standard for much longer.”
A key remaining issue that needs to be resolved is how to best reflect and present the volatility from short-term market movements under the proposed model.”
Danny Clark, insurance partner at KPMG, adds “If the sharp focus on insurance is not maintained, there is a fear that a final standard will not materialise in 2013. This means that final implementation would not be achieved in the near term. We strongly encourage the IASB and the insurance industry to concentrate their efforts on the key issues and not get distracted by less important details. If these key issues are thrashed out over the next few months of 2012 and the results are exposed for comment late in the summer, we have a real chance of seeing a final standard for insurance accounting by the middle of 2013. However, this is a best case scenario and is under threat if all stakeholders do not focus on bringing the project to a conclusion. The time for implementation is now pressing.”
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