North American Insurers Ask FASB to Consider Separate Models for Short-Duration Non-Life and Long-Duration Life Contracts

NEW YORK, Sept. 6, 2011 /PRNewswire/ -- Citing significant investor concerns with proposed modifications to accounting standards for short-duration non-life insurance contracts, North American insurers called on the Financial Accounting Standards Board (FASB) to consider two separate models for insurance contracts: one for short-duration non-life contracts and another for long-duration life contracts.

In a September 6 letter to FASB chairman Leslie Seidman, the Group of North American Insurance Enterprises (GNAIE) said investors are satisfied with the current measurement and reporting of short-duration non-life insurance contracts and generally oppose proposals to introduce explicit risk adjustments, discounting and new eligibility requirements.

According to GNAIE, investors believe the proposed changes would increase the non-economic volatility of reported results for reasons outside the control of management; make operating performance less comparable and understandable, or are otherwise necessary as no practice issues, such as modified eligibility requirements, currently exist.

"Investors believe the proposed modifications may result in the global insurance industry becoming less attractive as an investment thus causing the industry's cost of capital to rise," Kevin A. Spataro, chair, GNAIE Accounting Convergence Committee, said in the letter.

"This would have detrimental impacts not only on the global insurance industry, but also on the customers it serves, causing either higher prices or lack of availability of certain insurance products," he continued.

Spataro pointed out that GNAIE along with other representatives of the non-life insurance industry have called for separate models, one for short-duration non-life insurance contracts, and one for long-duration life insurance contracts.

In addition he noted that investors, analysts and preparers around the globe agree that the underlying businesses of non-life and life insurers are fundamentally different.

"Therefore, requiring application of a single model for both short-duration and long-duration insurance contracts would produce information that is not comparable, understandable, decision-useful nor reflective of a high quality global account standard," he said.

Spataro observed that the current model in place in most of the world for short-duration non-life contracts does not include explicit risk adjustments or discounting; has proven extremely reliable in the decades it has been in place; has already achieved global implementation; promotes comparability; is understandable and is consistent with the business model of insurers who issue short-duration non-life insurance contracts.

"In short, it possesses all the key attributes of a high-quality global accounting standard," he said.

To influence the development of international accounting and solvency standards to ensure that they result in robust, high quality standards for insurance enterprises.

GNAIE
40 Exchange Place, Suite 1707
New York, NY 10005
UNITED STATES
+1-212-480-0808
[email protected]
www.gnaie.net

SOURCE Group of North American Insurance Enterprises

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