ACE Limited Chief Executive Officer Evan Greenberg said the push for new U.S. accounting standards may distract investors from the most useful metrics in gauging insurers’ financial status.
“I don’t know whose benefit you’re ultimately serving except a bunch of academics,” Greenberg said Wednesday on a conference call.
The Financial Accounting Standards Board proposed in June to revise how insurers measure liabilities as part of a push toward a “converged international standard.” Zurich-based Ace operates in more than 50 nations and counts North America as its largest market.
“The insurance accounting as it stands today has been around a long time. It’s been tested through all kinds of environments, and it’s reasonable,” Greenberg said. “And I don’t know what kind of problem we’re trying to chase here by making changes.”
Greenberg’s critique was welcomed by Paul Newsome, an analyst with Sandler O’Neill & Partners LP, who said on the call that changes in accounting could create a “train wreck.”
Under the proposed standards, market fluctuations such as changes in interest rates could play a greater role in quantifying book value, a measure of assets minus liabilities, Newsome said in an interview after the call. The approach could amplify negative results and make it harder for regulators to weigh a company’s financial strength, he said.
“The concern is that if a company is having problems at the same time the rest of the financial markets are having problems, the accounting would make the rates look even worse,” he said.
Buffett’s View
Ace shares fell 1.9 percent to $95.96 at 12:10 p.m. in New York trading. Third-quarter net income climbed 43 percent to $916 million, the insurer said yesterday.
Greenberg said that operating income is a favored metric among investors even though it doesn’t comply with generally accepted accounting principles. Warren Buffett, whose Berkshire Hathaway Inc. competes with Ace selling insurance, has also said that accounting conventions provide an incomplete picture of a company’s health.
“It’s much easier to criticize than to improve such accounting rules,” Buffett wrote in a letter to investors in 1981. “The inherent problems are monumental.”
U.S. insurers, including MetLife Inc. and Prudential Financial Inc., the largest sellers of life coverage in the country, have also said new regulations could be misguided. The companies have been pressing the Federal Reserve to avoid regulating insurers with bank-like capital rules.
(With assistance from Yalman Onaran in New York. Editors: Dan Kraut, Dan Reichl)