Respondents to IASB Insurance Contracts Discussion Paper Offer Ideas for Improvement

LONDON, April 28 /PRNewswire/ -- A report issued by Ernst & Young today shows that overall the insurance industry and its constituents have given the International Accounting Standards Board (IASB) strong support for the development of a high-quality global insurance standard, with many referring to it as much needed. The report, prepared for the benefit of a consortium of the world's most influential insurance trade bodies, summarizes the comment letters posted to the IASB's website in response to its Discussion Paper (DP), Preliminary Views on Insurance Contracts, and shows some differences of opinion on how the standard should be drafted and implemented, often depending on geography, regulatory environment or industry sector.

James Dean, practice leader for Ernst & Young's Global Insurance Center and one of the leaders of the review team, comments, "Whatever final insurance standard the IASB develops will result in a fundamental change in the finance and actuarial functions of many insurance companies. Understanding the impact on systems, data, pricing and capital management will be a major challenge. Insurers should start now to examine how this will affect their financial systems and statements. The impact will be truly life changing for many organizations."

The broad areas of consensus showed that, collectively, the industry and others believe accounting for insurance should reflect the economics of the business. There is little support for current exit value (CEV), as defined in the DP, without potentially substantial modifications. Many respondents do not agree that the transfer concept is appropriate for valuing insurance liabilities. The "value in settlement" measurement attribute supported by many, emphasizes ultimate settlement since contracts are not likely to be transferred, but paid or settled by the company in the future.

The DP proposes three building blocks for the measurement of insurance liabilities: cash flows, discount rates and margins. Respondents broadly agreed with an approach to measurement for life insurance similar to the building block approach, but disagreed on the specific definition and application of those components.

Robert Stein, of the Global Insurance Center, Ernst & Young, comments, "Our primary objective was to provide a clear and unbiased view of the responses submitted to the IASB. Furthermore, dialogue that took place with several of the authors of those letters allowed us to gain a deeper understanding of the issues and alternative views expressed by them."

There are concerns about the timing of developing such a standard in relation to other IASB projects and also its relationship to other industries that might be materially affected. The majority of respondents commenting on timing issues favor advancing other IASB projects first, while, in contrast, others support accelerating this discussion and not waiting for convergence with US GAAP. However, there was consensus that all IASB projects should be coordinated to avoid conflicts, and almost every organization called for field testing.

About the IASB Discussion Paper and the Review

In May 2007, the International Accounting Standards Board (IASB) issued its discussion paper Preliminary Views on Insurance Contracts (the discussion paper) and an invitation to comment on this paper by November 17, 2007. The discussion paper outlines the Board's preliminary views on the main components of phase II of the IASB's insurance contracts accounting model for insurers. As of March 26, 2008, 162 comment letters had been posted to the IASB's website. The responses, which typically run from five to 50 pages, reflect consideration of the issues presented by the IASB. Due to the need for wide consultation and the time required to complete the exposure process, a draft standard is unlikely to be exposed before 2009.

The Consortium, a group of nine industry trade groups, including bodies representing the industry in the US,Europe, andJapan, tasked Ernst & Young to summarize the comment letters posted to the IASB's website in response to its DP. Ernst & Young reviewed 94 of these letters. The purpose was to identify the industry's response to the DP and related questions. The findings were presented to the Consortium in March and have been shared with the IASB staff.

For a copy of Ernst & Young's report "Summary of Comment Letters on IASB Discussion Paper, Preliminary Views on Insurance Contracts" go to www.ey.com/insurance.

About The Consortium

The Consortium is a group of industry trade bodies, including: American Council of Life Insurers (ACLI), American Insurance Association (AIA), CFO Forum, European Insurance and Reinsurance Federation (CEA), Group of North American Insurance Enterprises, Inc. (GNAIE), Life Insurance Association of Japan (LIAJ), National Association of Mutual Insurance Companies (NAMIC), Property Casualty Insurers Association of America (PCI) and the Reinsurance Association of America (RAA).

About Ernst & Young's Global Insurance Center

Insurers must increasingly address more complex and converging regulatory issues that challenge their risk management approaches, operations and financial reporting practices. Ernst & Young's Global Insurance Center brings together a worldwide team of professionals to help you achieve your potential -- a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

For more information, please visit www.ey.com.

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This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

SOURCE Ernst & Young

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