Presentation on theme: "PHILIPPE TRAINAR PHILIPPE TRAINAR Ninth Annual Conference of the IAIS 8-11 October 2002, Santiago, Chile PANEL ON INTERNATIONAL ACCOUNTING STANDARDS FOR."— Presentation transcript:
PHILIPPE TRAINAR PHILIPPE TRAINAR Ninth Annual Conference of the IAIS 8-11 October 2002, Santiago, Chile PANEL ON INTERNATIONAL ACCOUNTING STANDARDS FOR INSURANCE
Thursday, 10 October 2002 - FFSA - 2 I would like to address the complex interactions between IAS, supervisors & insurance business from an European point of view : IAS & Insurance business : convergence, anxieties & divergences IAS, IAIS & Insurance business : anxietes, convergence & cooperation Introduction
Thursday, 10 October 2002 - FFSA - 3 IAS & Insurance Business 1.Constrained exercise 2.Convergence 3.Anxieties 4.Divergence 5.Interim period Endgame ?
Thursday, 10 October 2002 - FFSA - 4 IAS & Insurance Business Constrained exercise for European business something imposed to business by public authorities very short time deadline (2005) without exemptions, except for public enterprises, mutuals & companies establishing their primary accounts in Us Gaap decision taken without any knowledge of the exact contents & and of its economic consequences absolutely no reflections on the art and ways to master such consequences as volatility etc...
Thursday, 10 October 2002 - FFSA - 5 IAS & Insurance Business Convergence between IAS & insurance business transparency, objectivity, understandability, practicality, relevance & reliability of standards international standards, that is international comparability => easier job for multinationals intersectoral standards, that is intersectoral comparability => reduced risk premium for insurer defined principles, as opposed to precise rules => priority to economic substance over legal form reference to market, that is to economic value => more coherent concept of value
Thursday, 10 October 2002 - FFSA - 6 IAS & Insurance Business Anxieties of insurance companies about IAS a non transparent and non foreseeable process existing standards do not seem well adapted to insurance business because of : long term view of most insurance activities large flexible intertemporal mutualization between generations of contracts in many countries asset / liability management that lies at the core of insurance business and is key for understanding accounts unclear regulatory and fiscal consequences of the new standards for insurance companies
Thursday, 10 October 2002 - FFSA - 7 IAS & Insurance Business Divergences between IAS & insurance business “full fair value” can not be an implicit reference because most markets, particularly in insurance, are not continuously liquid => successful lobbying “own credit worthiness” can not impact the measurement of insurance liabilities, because of legal constraints => successful lobbying many European life insurance contracts falling in the scope of IAS 39 (ex : performance linked contracts) are not well treated by this norm at minimum, IAS 39 should be completed
Thursday, 10 October 2002 - FFSA - 8 IAS & Insurance Business Necessary interim period current situation : no norm for insurance contract and no completed IAS 39 => it is too late for 2005 2 criteria for interim regime : consistency (of asset & liability accounting) & cost effectiveness => interim propositions of the European insurers : for liabilities : current “prudent” practices as “best” practices + elimination of non IASB compliant ones for assets : exemption of IAS, easing of “held to maturity”, further category of asset for insurer or shadow accounting additional disclosures of assumptions, methods, sensitivities & embedded values
Thursday, 10 October 2002 - FFSA - 9 IAS & Insurance Business Endgame ? general questions : how to recognize profit at inception & calculate market value margin for life insurance => what true and fair view of unallocated surplus ? economic vs accounting view for non life insurance => how to control entity specific assumptions ? Standardized vs specific one general requirement : comprehensive field tests and comprehensive performance reporting insurers have to set up reliable data, assumptions & sensitivity tests + explain volatility of results
Thursday, 10 October 2002 - FFSA - 10 IAS, IAIS & Insurance Business Potential conflicting expectations of supervisors & insurance companies On the background of clear converging point of views & interests Opportunity for supervisors & business to work together
Thursday, 10 October 2002 - FFSA - 11 IAS, IAIS & Insurance Business Potential conflicting expectations business fears the consequences, for it, of the current developing debate on a potential opposition between true & fair accounting vs prudent one business asks for one accounting standards when supervisors threat to impose separate regulatory & accounting standards if they are not satisfied business asks for a complete review of “prudential” rules (solvency & asset rules) in order to tackle correctly higher volatility => also tax consequences business fears current misunderstanding between financial & sectoral public authorities
Thursday, 10 October 2002 - FFSA - 12 IAS, IAIS & Insurance Business Clear converging point of views & interests both want transparent, objective, practicable, understandable, relevant, reliable & comparable standards both want coherent standards that the best financial information on the liabilities of insurers & on the effectiveness of their ALM both want to avoid any artificial volatility or misleading financial statements both want to find accurate information on “prudential” provisions in excess of “best estimate” ones in the future financial statements
Thursday, 10 October 2002 - FFSA - 13 IAS, IAIS & Insurance Business Opportunity to work together we fully share the views expressed in the letter of Chairmans Aguilera & Roberts sent last june to sir David of IASB… except ch. 1 § 4 => a comprehensive presentation of the most sensitive issues for the insurance sector IASB is in an educational process concerning insurance contracts => margins for constructive dialogue despite the short term deadline at this step, past experience demonstrates that such a dialogue can produce some results
Thursday, 10 October 2002 - FFSA - 14 We would probably have preferred to get a more progressive and less revolutionary international set of accounting standards. But IASB, with the support of European Commission & Ministers of Finance, decided differently and imposed an imprudent agenda. Regulators, supervisors & insurers should cooperate in order to get the less bad solution, an attitude that does not predetermine the final position of insurers. Suggestions for conclusion