The Financial Accounting Standards Board announced in February that it will no longer pursue a full revamp of insurance contract accounting but instead will consider only targeted improvements. For long duration contracts (which are chiefly life insurance products) the targeted improvements will include changes to the basic model, but for short duration contracts (chiefly property/casualty) the improvements will focus only on disclosures.
Executive Summary
With the prospect of the FASB and the IASB reaching agreement on key issues becoming increasingly unlikely, the FASB has tabled its effort to fully revamp insurance accounting. Assured Research's Alan Zimmermann explores the implications, weighing in on what's next and whether U.S or global insurers will now have a valuation advantage.The two questions to ask on the back of this announcement are 1) why did the board make this decision and 2) What are the implications for insurers?
To understand why this decision was made you need a little history as the project actually started with the International Accounting Standards Board in London and not in the United States.
When the IASB agreed with the European Union to develop a set of accounting standards to be used by all listed companies in the EU by 2005, the IASB recognized that it could not finalize the standards for insurance accounting in time to meet the agreed-upon deadline. So rather than hold up the entire project the board issued a temporary standard which essentially let the insurers continue to use their local GAAP, with some modifications.
