Choppier profits seen on insurance accounting shake-up

Thu Jun 27, 2013 3:17pm EDT
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By Dena Aubin

NEW YORK (Reuters) - The biggest overhaul of insurance accounting in 30 years advanced a step on Thursday with the release of a proposal that some insurers fear could make their profits more volatile.

In a move to align financial statements worldwide, the U.S. Financial Accounting Standards Board (FASB) aims to shine a light on what some call the "black box" of insurers' finances.

By proposing that insurers revalue policies each quarter and recognize revenue later, FASB is trying to make insurers' books more relevant and useful to investors.

FASB is taking on major property and casualty insurers, who say some of the proposed changes to U.S. generally accepted accounting principles, or GAAP, will add uncertainty to the already uncertain process of estimating claims.

"GAAP really isn't broken, and the proposals don't seem like a huge improvement to us," said Julie Kirby, director of the office of accounting policy at insurer State Farm.

The proposed FASB rule would require updating policies with more current data on interest rates, mortality rates, frequency of claims and the like. It would also require recognizing revenue as coverage is provided, not when premiums are received.

FASB will seek comments through October 25. The standard is not likely to take effect before 2018, accounting experts said.

Investors are often wary of the insurance sector because of its murky accounting and because some long-term policies can make it difficult to estimate future profits and losses.   Continued...