If you are like most insurance executives you are probably aware that changes are coming to insurance accounting, but you’re probably not exactly sure what they are or why all this is happening.
Executive SummaryWith the Financial Accounting Standards Board and the International Accounting Standards Board expected to finalize their work on new insurance accounting standards in the next two years, likely impacts include more volatile reported earnings, delayed profit recognition in some areas and lower starting book values, according to Alan Zimmermann and William Wilt of Assured Research, who describe some details of proposed changes.
The impact on companies could be significant and the timetable is coming into focus. So even though the new standards have not been finalized, it is now time for companies, if they haven’t already done so, to begin thinking about what needs to be done to comply with the eventual standards and to begin educating employees and directors.
This article discusses the changes, and key points to take away are that reported earnings will be more volatile, profit recognition will probably be delayed for some lines and accelerated for others compared to current accounting, and the starting book values will be lower. The consequence is that the new standard will likely change the way analysts and investors view the business, which has implications for stock prices and could lead to changes in the way products are designed and how companies are managed.
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