Insurers Mull FASB Insurance Contracts Project

Insurance industry representatives are offering their initial take on how the Financial Accounting Standards Board, Norwalk, Conn., should go about creating new accounting rules for insurance contracts.

The FASB recently asked for comment, due Nov. 16, to help it decide whether to work on an insurance policy accounting project on its own or with the International Accounting Standards Board, London.

Topics that FASB noted in its invitation include accounting for the time value of money and the ‘unbundling’ of insurance components from financing components in insurance contracts.

Additionally, FASB hopes for comment on use of cash flow accounting for both short-duration and long-duration contracts, rather than the unearned premium method for short-duration contracts and the lock-in method for long-duration contracts.

The Group of North American Insurance Enterprises supports the creation of an international standard for insurance contracts accounting and is “participating in the joint effort of the FASB and the IASB to converge standards, and this is an important part of that work,” said Jerry de St. Paer, executive chairman, GNAIE, and senior vice president-finance with American International Group, New York.

Among the points de St. Paer recently made during a presentation to the International Association of Insurance Supervisors, Basel, Switzerland, is that assigning value to an insurance liability, assuming it is the amount that an insurer would expect to pay to a third party to transfer rights and obligations, ignores the absence of efficient markets for most insurance liabilities.

Other points de St. Paer made during the presentation include:

–A question on how policyholder dividends are accounted for in ways that he said produce the “wrong value of future cash flows.”