Life Insurance Companies Counter IFRS.

July 31st, 2010 Posted in Ski Holiday Insurance

Canadian insurance companies are demanding the Canadian regulatory bodies to steer the accounting principles/reporting requirements in their favour. In summary, insurance companies would like an amendment of International Financial Reporting Standards which Canadian government is prepared to comply with but wants to effect not before 2013.

Insurers state that the new rules will prepare way for excessive instability to the capital/equity ratio in year-to-year (or quarter-to-quarter) checks. Unfortunately, not only would this make the comparisons substantially more difficult, but it would also obstruct comparisons to results prepared under the former standard.

LSM Insurance says the the second one is weedy defense though, as the insurance companies would most likely be asked to re-calculate recent few periods’ statements applying the fresh regulations exactly for the goal of logical comparability, as is the situation with most changes of the standards. However, a new set of rules will definitely mean bigger amount of office expenses in the time of the transition at the very least.

As to the instability of capital ratios, the Financial Post writes that the the industry are proposing a two-tier accounting rules that lets capital to be counted based on a different set of rules than the International Financial Reporting Standards. This sure makes sense since the amounts of capital reserves are monitored and regulated by the Canadian regulatory body – OSFI. Should there be too big instability of reserves, the insurance companies may be force to change them more often so that put off ideal capital management.

In extreme situations, malnourished capital reserves may awake OSFI to deem an insurance company bankrupt. In these days, it is far from possible to determine the exact result of International Financial Reporting Standards on c/e instability, as the new rules are currently under development by the International Accounting Standards Board. Nonetheless, the insurers are hoping that a two-tier regulations, which is valid in the Anglo-Saxon countries will erase any such concerns.